Structural Reform and Firm Profitability in Developing Countries

47 Pages Posted: 8 Dec 2008

See all articles by Alvaro Cuervo-Cazurra

Alvaro Cuervo-Cazurra

Northeastern University - Department of International Business and Strategy

Luis Alfonso Dau

University of South Carolina; Northeastern University - Department of International Business and Strategy

Date Written: July 5, 2008

Abstract

We extend agency theory to propose that structural reform positively impacts firm profitability in developing countries because the improvements in external monitoring that accompany structural reform decrease the agency costs faced by firms. However, we also argue that not all firms benefit equally from structural reform because their agency problems are impacted differently. Hence, we propose that structural reform results in higher improvements in profitability for domestic state-owned and domestic private firms than it does for subsidiaries of foreign firms. Results of the analyses of the largest 500 firms in Latin America support the arguments, suggesting that, contrary to the views of many critics of globalization, domestic firms are the main beneficiaries of structural reform in developing countries.

Keywords: agency theory, structural reform, firm profitability, state-owned firms, private firms

JEL Classification: F23, G34, L33, M21

Suggested Citation

Cuervo-Cazurra, Alvaro and Dau, Luis Alfonso, Structural Reform and Firm Profitability in Developing Countries (July 5, 2008). William Davidson Institute Working Paper No. 940. Available at SSRN: https://ssrn.com/abstract=1311928 or http://dx.doi.org/10.2139/ssrn.1311928

Alvaro Cuervo-Cazurra (Contact Author)

Northeastern University - Department of International Business and Strategy ( email )

D'Amore-McKim School of Business
313 Hayden Hall, 360 Huntington Avenue
Boston, MA 02115
United States
16173736568 (Phone)
16173738628 (Fax)

HOME PAGE: http://cuervo-cazurra.com

Luis Alfonso Dau

University of South Carolina ( email )

701 Main Street
Columbia, SC 29208
United States

Northeastern University - Department of International Business and Strategy ( email )

Boston, MA 02115
United States

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