Essays in financial economics (Mexico)

This thesis considers two different topics in the financial economics literature: investor protection and international capital market segmentation.; Chapter 1 analyzes the decision by a firm to opt out of the law to enhance the level of investor protection using private contracts. The examination of a sample of Mexican firms' charters suggests that private firms often enhance significantly the protection offered by the law to their investors, but public firms rarely do so. To explain these findings, and to analyze the level of investor protection provided in different legal regimes, this chapter develops a model that endogenizes the degree of investor protection that firms provide through private contracts.; The next two chapters examine the internal capital market created by cross-border acquisitions as a mechanism that provides firms with indirect access to more developed financial markets. Chapter 2 analyzes whether cross-border acquisitions create more value when firms in greater need of external finance are acquired by firms from more developed financial markets. In addition, it examines whether less value is created when the firm in the country with the more developed financial market is in greater need of external finance. Evidence from a sample of cross-border acquisitions between 24 countries during the period of 1985–2001 supports these hypotheses. The results suggest that the internal capital market created by the cross-border acquisition reduces the cost of external finance of target firms located in countries with less developed financial markets.; Chapter 3 analyzes the effects that the cross-border internal capital market has on real economic variables. The results show that target firms in greater need of external finance invest more when the acquirer firm is located in a country with a more developed financial market. This effect is smaller when the acquirer firm has a greater need of external finance. In addition, the evidence suggests that the degree of financial development in the acquirer's country has no effect on the target's capital allocation efficiency.