Effects of foreign ownership and International Financial Reporting Standards on debt maturity in Chilean firms

Jorge A Muñoz-Mendoza,Carmen L Veloso-Ramos,Carlos L Delgado-Fuentealba,Sandra M Sepúlveda-Yelpo

doi:10.18046/j.estger.2019.153.3374

Jorge A Muñoz-Mendoza, Carmen L Veloso-Ramos + Show 2 more

Open Access

https://doi.org/10.18046/j.estger.2019.153.3374

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Journal: Estudios Gerenciales	Publication Date: Nov 18, 2019
Citations: 1	License type: CC BY 4.0

Affiliation: University of Concepción

Abstract

The objective of this article is to determine the effects of foreign ownership and International Financial Reporting Standards (IFRS) on debt maturity in Chilean companies. The study uses a fractional response model (FRM) on 20,586 companies. The results show foreign ownership has a negative and non-linear effect. Foreign ownership in Chilean firms is a substitute control means in relation to long-term debt. IFRS reduces maturity in large companies and extends them in small and medium enterprises (SMEs). These results suggest it is more important for large firms to control agency conflicts, while it is more important for SMEs to reduce information asymmetry.

Highlights

IntroductionA topic that has attracted the interest of researchers is the presence of foreign investors in companies’ ownership structure
Debt maturity has been a widely studied subject in corporate finance
Our results show that foreign ownership reduces debt maturity, which is consistent with the idea that investors use debt maturity to control agency costs

Summary

Introduction

A topic that has attracted the interest of researchers is the presence of foreign investors in companies’ ownership structure This presence may have important effects on debt maturity, limited international evidence has not been able to determine this relationship in a consistent manner. Some studies highlight that greater participation by foreign investors in corporate ownership leads to greater debt maturities (Ezeoha, Ogamba & Onyiuke, 2008; Li, Yue & Zhao, 2009; Tanaka, 2015). These studies argue that foreign ownership exercises a complementary supervisory role on long-term debt and that such monitoring can constitute great advantages and improvements to corporate management. There are several studies in Chile that analyze corporate debt maturity determinants, none have analyzed the potential effects of foreign ownership and its implications

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