Corporate governance in Latin America and Spain: a comparative study of regulatory framework

Abstract

Based on institutional theory, this study presents a comparative analysis of the regulatory framework for corporate governance to be found in the most important emerging markets in Latin America (Argentina, Brazil, Chile and Mexico), which represent most of the stock market capitalization in the region. In addition, we analyzed the situation of Spain, representing the European economy, given this country’s strong investment presence in the Latin American stock market. The aims of the study are: 1) to extend the current literature related to corporate governance in Spain and emerging Latin American economies; 2) to highlight the evolution of the institutional and regulatory framework for corporate governance in these countries; and 3) to compare the diverse regulatory framework, with particular focus on the laws and corporate governance codes in the above mentioned countries. Despite the trend for international convergence of corporate governance systems toward the Anglo-Saxon model, both in legislation and in good governance codes, there are significant differences between countries. The present convergence is promoted by different institutions; systems differ, thus, in their implementation and application of good governance practices. The countries in question have adopted a hybrid model based, on the one hand, on laws and decrees, and on the other, on the voluntary adoption of codes of good governance. The aim of these measures is to enhance investor protection, to define the functions of the Board and of the Audit Committee, and to improve transparency, especially regarding conflicts of interest, related party transactions and corporate risk for listed companies. The evidence presented in this paper suggests that Argentina, Brazil and Chile have strengthened their legislation in the case of minority investor protection and market transparency (Circular No. 3531 in Argentina, Law No. 10303 in Brazil and the Take-over Law in Chile). On the other hand, Mexico and Spain have issued regulations focused on transparency information (the Transparency Law in Spain and the CUE Circular in Mexico). Codes of good governance have been adopted by all countries except Chile, which bases its corporate governance on the OPAs (Take-over bids) Act. The practices addressed in corporate governance codes are focused on the Board, whose main function is to monitor and supervise management performance. These codes contain a set of recommended practices defining the functions, structure, composition and creation of different committees that support the Board, together with aspects related to COB-CEO duality. Spain and Chile are the countries that have adopted most such practices. The audit function is another important corporate governance dimension in the codes, concerning the role, liabilities and composition of the Audit Committee. This body is responsible for ensuring full and transparent disclosure of company transactions. Mexico is the country that pays most attention to the audit function. Practices relating to the general meeting, disclosure, conflicts of interest and Board support committees are established in all governance codes, especially in Argentina, Brazil and Mexico.