Essays on corporate finance in emerging markets

This paper provides evidence on the effect of corporate diversification and of equity ownership on firm value in emerging markets. Across a sample of over one thousand firms from seven emerging markets, I find that diversified firms trade at a discount of approximately eight percent compared to single segment firms. I find a discount only for diversified firms that are part of an industrial group and for diversified firms with ownership concentration between 10 and 30 percent; there is no evidence of a discount for firms with lower or higher ownership concentration. These results indicate that agency costs overwhelm the benefits of corporate diversification at the firm level.; In a sample of over 1800 firms from 22 emerging markets, I find that firm values increase as the level of both control rights and cash flow rights held by blockholders increase, especially when blockholders hold a majority ownership position. The management group and their families, who are the controlling blockholder in more than two-thirds of sample firms, make extensive use of mechanisms such as pyramid ownership schemes and non-voting equity to uncouple their cash flow rights from their control rights. I find that such deviations between control and cash flow rights correspond to lower firm values and that this result is stronger in countries with lower shareholder protection where the value of control should be the highest. Taken together, my results indicate that agency problems are costly in emerging markets and that large blockholders play a positive and significant role in the governance of firms from these markets.