Ownership structure, capital structure, and investment in emerging markets: The case of Mexico

Surprisingly little is known about Corporate Finance in developing countries. This thesis attempts to shed some light on the determinants of the ownership structure, capital structure, and investment of firms in the particular case of Mexico. It contains three empirical essays that use a database of detailed information on all the firms that issued commercial paper, subordinated debt and/or had their shares traded in the Mexican Stock Exchange (MSE) between 1987 and 1996.; Chapter 1 analyses the effects that the weak protection of minority shareholders' rights in Mexico has had on the ownership structure, voting structure, and corporate practices of Mexican public firms. It reviews and assesses the quality of Mexican corporate governance legislation, describes ownership and voting structures of firms listed on the MSE, and presents econometric evidence on their determinants. It also shows the effect that the introduction of legislation allowing dual-class share structures has had on the diversion between property rights and control rights of Mexican firms.; Chapter 2 explores the causes and consequences on firms of making a public equity offering. The results suggest that Mexican firms choose to do an initial public offering (IPO) when they have a large potential for growth but are liquidity-constrained. Doing an IPO helps them finance aggressive investment programs by raising funds in the stock market and by lowering their cost of debt finance, especially bank finance. The results also suggest that issuing ADRs facilitates a firm's access to foreign-currency-denominated debt finance--especially through international corporate bond markets--by lowering the information asymmetry between the firm and foreign investors.; Chapter 3 studies the impact of financial liberalization on the capital structure and investment behavior of firms in Mexico. It presents evidence on the ability of firms to obtain enough external funds to finance desired investment by comparing the capital structure and the strength of financial constraints across firms before and after financial liberalization. This evidence suggests that only relatively few public firms significantly diminished their dependence on internal cash flow to invest as a result of liberalization. These firms share some common features and shifted their capital structure in the same direction after liberalization.