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The Influence of Insiders and Institutional Owners on the Value, Transparency, and Earnings Quality of Chilean Listed Firms

40 Pages Posted: 27 Apr 2007  

Veronica Pizzaro

Pontifical Catholic University of Valparaiso

Sakthi Mahenthrian

Butler University

David Cademartori

Pontifical Catholic University of Valparaiso

Roberto Curci

Butler University - College of Business Administration

Date Written: April 2007

Abstract

In 1980, Chile privatized its social security system, and currently there are five private pension funds managing approximately US$83 billion worth of retirement investments. The regulations provide for pension funds to appoint a member to the board of directors, and influence the appointment of auditors. Thus, institutions are playing a major role in Chile's transition a market-based financial system. The study uses data from 70 firms from 1995-2005 to test the impact of these institutional changes on firm value, transparency levels and earnings quality. The study finds that insider ownership levels and institutional ownership positively affects firm value but these factors, and the pension fund representation on firm boards negatively affects the transparency index. Further, institutional ownership levels also encourage the entrenched owners to use positive discretionary accrual to manage earnings. Using agency theory, we suggest that high insider ownership levels are an equilibrium that helps managers co-opt institutions by providing access to information, which bestows private benefits control to stakeholders aligned with entrenched insiders' interests.

Keywords: Insider Owners, Financial Institutions, Corporate Governance, Earnings Quality

JEL Classification: G23, G29, G30, G32, M41, M43, M47, G38

Suggested Citation

Pizzaro, Veronica and Mahenthrian, Sakthi and Cademartori, David and Curci, Roberto, The Influence of Insiders and Institutional Owners on the Value, Transparency, and Earnings Quality of Chilean Listed Firms (April 2007). Available at SSRN: https://ssrn.com/abstract=982697 or http://dx.doi.org/10.2139/ssrn.982697

Veronica Pizzaro

Pontifical Catholic University of Valparaiso ( email )

Escuela de Comercio - UCV
Valpariso, Valparaiso 2362736
Chile

Sakthi Mahenthrian (Contact Author)

Butler University ( email )

4600 Sunset Avenue
Indianapolis, IN 46208
United States

David Cademartori

Pontifical Catholic University of Valparaiso ( email )

Escuela de Comercio - UCV
Valpariso, Valparaiso 2362736
Chile

Roberto Curci

Butler University - College of Business Administration ( email )

Indianapolis, IN 46208
United States

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