Pension Privatization and Corporate Governance: The Chilean System in Comparative Perspective
22 Pages Posted: 1 Apr 2008
Date Written: March 31, 2008
Pension system privatization and corporate governance reform have simultaneously come to the forefront of efforts to diffuse ownership concentration and therefore pursue capital market development. Typically considered separately, the two are closely linked. We explore the ways in which many Latin American economies have failed to realize the expectation that deeper markets imply diffuse, well-governed corporate ownership. As an explanation, we demonstrate that the institutional investors created by pension privatization, and the individual pensioners they represent, are highly constrained in their ability to exercise voice or exit for better opportunities in an effort to encourage improved corporate governance and ownership diffusion. Furthermore, such activism is a low priority given the relatively small fraction the corporate equities comprise of funds' overall portfolios. Chile's experience is compared with the institutional details of pension systems in four other Latin American countries. A preliminary theory and hypotheses are generated inductively based on the analysis.
Keywords: corporate governance, pension reforms, capital markets, chile, latin america
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