Abstract
The purpose of this study is to explain the financial performance of companies in Latin America through the lens of capital structure and ownership structure. We perform a quantitative analysis of companies in Brazil, Chile, Mexico, and Peru using a panel data method. To avoid endogeneity problems, instrumental variables, generalised method of moments models, and panels with random effects are employed. The data cover the period 2000 to 2015. We find a positive relationship between financial performance, growth, and size of the company. However, there are mixed results for short- and long-term financial leverage, as well as for company liquidity. With respect to the ownership structure of Chilean companies, a positive effect is observed for the first major shareholder with financial performance. In general, our results are in line with those of previous studies. However, the existence of mixed results between companies and countries makes for an interesting and novel conclusion.
Highlights
Company performance is a key issue for investors, shareholders, and the economy in general
The objective of this study was to estimate the effects of the variables that affect the profitability of Brazilian, Chilean, Mexican, and Peruvian companies
The results did not allow us to observe the effect of leverage on financial performance, as there were mixed results between short-term debt (SD) and long-term debt (LD)
Summary
Company performance is a key issue for investors, shareholders, and the economy in general. Previous studies have used return on assets (ROA), return on equity (ROE), and Tobin’s Q as measures of competitive advantage (Liargovas & Skandalis, 2008). The objective of the present work is to reveal the relationships in Latin American economics between financial performance and the following financial variables: leverage, operational risk, size, liquidity, growth, tangibility and ownership structure. The evidence shows inconclusive results for these types of economies (Hawawini, Subramanian, & Verdin, 2004). In this investigation, we use the following three measures of financial performance: ROA, ROE and Q of Tobin.
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