Latin American Integrated Market Research Articles

Taking ESG strategies for achieving profits: a dynamic panel data analysis

PurposeThe goal is to investigate the relationship between financial performance and environmental, social and governance (ESG) indicators and disclosures for a sample of Latin American firms.Design/methodology/approachDynamic panel data regressions are used to analyze a sample of 114 companies listed on the Latin American Integrated Market, MILA (Chile, Colombia, Mexico and Peru) for the period 2011–2020. The Altman Z-score and Piotroski F-score are used as indicators of the probability of default and comprehensive financial strength. Models are developed in which the relationship between economic value added (EVA) and Jensen’s alpha are evaluated against firms’ ESG practices.FindingsA direct relationship between ESG strategies and financial performance was found. Better practices and transparency in ESG are related to lower probability of bankruptcy, greater financial strength, greater EVA and superior risk-adjusted returns.Research limitations/implicationsESG data were obtained from the Bloomberg system based on a methodology that may differ from other sources. The sample covers four Latin American countries and large corporations. Independent variables were selected for their perceived validity, given their frequent use in previous studies.Practical implicationsEvidence for company management regarding the importance of strengthening ESG practices and reporting should be part of their balanced scorecards. For investors, the results support the importance of evaluating ESG practices in asset selection.Originality/valueThe present study is the first research to present empirical evidence on the relationship between ESG scores and disclosures for MILA countries, using a comprehensive set of financial performance indicators (Altman Z-scores, Piotroski F-scores, EVA and Jensen’s alpha).

Herding behavior in integrated financial markets: the case of MILA

PurposeIt has been argued in the literature that structural changes in the financial markets, such as integration, have the potential to cause herding behavior or correlated behavioral patterns in traders. The purpose of this study is to investigate whether there is any financial herding behavior in the Latin American Integrated Market (MILA), a transnational stock market composed of Chile, Peru, Colombia and Mexico stock exchanges and whether there is any ARCH or GARCH effect in the herding behavior models.Design/methodology/approachThis study uses the modified return dispersion approach on daily index return data. The sample period is from January 03, 2002 to May 07, 2019. The data are obtained from the MILA database. To count time-varying volatilities in herding models, the authors run ARCH family regression with GARCH (1,1) settings. Hwang and Salmon (2004) model is used as a robustness test.FindingsThe authors found strong herding behavior under the general market conditions and moderate and partial herding behavior under some specified markets circumstances, such as bull and bear markets and high-low volatility states. Moreover, the pre-MILA period exhibits more herding behavior than the post-MILA period. The empirical results show that most of the ARCH and GARCH effects are statistically significant, implying that the past information of stock returns and market volatility significantly affect the volatility of following periods, which can also explain the formation of herding tendency among investors. Finally, the results of the robustness tests (Hwang and Salmon, 2004) confirm herding in all periods, except full sample period for Mexico and post-MILA period for Mexico and Colombia.Research limitations/implicationsThis study investigates the herding behavior in the MILA market in terms of market return, volatility and timing. A limitation of the paper is that the authors have not included other factors on the formation of herding behavior, such as macroeconomic factors, effects of regional or international markets and policy influences. The authors will explore the issue in the extension of the paper.Practical implicationsAs MILA is the first virtual integration of stock exchanges without merging, the study provides useful findings and draws good inferences of herding behavior in the MILA market in terms of market return, volatility and timing which are useful for academics, investors and policymakers in their investment and decision makings.Social implicationsThe paper provides useful findings and draws good inferences of herding behavior in the MILA market in terms of market return, volatility and timing which are not only useful in practical implications, but also in social implications.Originality/valueThis study contributes to the herding literature by examining four different hypotheses in respect of the unique case of transnational stock exchange without fusions or corporate mergers, where each market maintains its independence and regulatory autonomy. The authors also contribute to the literature by including both ARCH and GARCH effects in the herding behavioral models along the Hwang and Salmon (2004) approach.

Reporting quality, stock market integration, and investment efficiency in Latin America

This study examines the impact of the Latin American Integrated Market (MILA for its Spanish acronym) on investment efficiency from 2003 to 2020. Our research suggests that MILA affects the efficiency of investment decisions by reducing information asymmetry and the agency problem. We present compelling empirical evidence that the impact of MILA on enhancing investment efficiency is especially pronounced in the over-investment problem. Furthermore, the mediation analysis reveals that firms listed on MILA stock exchanges have increased the efficiency of their investments, a result attributable partly to enhanced financial reporting quality. We employ difference-in-difference analysis to address the possibility of endogeneity. Our findings are validated by the fact that, compared with control firms, treatment firms improve their investment efficiency and mitigate the over-investment problem, thereby validating our findings.

LATIN AMERICAN INTEGRATED MARKET. IS THERE COINTEGRATION AFTER THE ENTRY OF MEXICO?

ABSTRACT
 This article analyzes the existence of cointegration in the Latin American Integrated Market (MILA), after the entry of Mexico. Methodological tests do not detect a long-term stationary relationship between its four members. However, this relationship is detected for Chile-Colombia-Mexico; for Chile-Colombia and Colombia-Mexico, respectively.
 Based on the number of cointegration relations and net financial position of each market, it is concluded that Colombia and Chile have benefited through their issuing companies. On the side of local investors, who diversify their resources in the remaining markets, are followed by Mexico. The least benefited has been Peru for not presenting cointegration.

Capital flows in integrated capital markets: MILA case

<abstract><p>The FeldsteinHorioka1980 study on investment flows through the correlation of domestic saving and investment concluded that liberalization of capital markets does not necessarily lead to a movement of capital looking for a better allocation of resources, as classical theory would suggest. Ever since, literature has been prolific regarding this "puzzle", with arguments for and against this conclusion. This paper aims to analyze the issue from a different perspective. In recent years, the stock markets of Chile, Colombia, Mexico and Peru joined the Latin American Integrated Market through an agreement that allows investors in any of the participating markets to invest in the others as if they were investing locally. Compositional methods are used to assess the hypothesis of a potential flow of capital between markets generated by the creation of the joint market. First, cross-sectional methods for compositional data were used to test the hypothesis. As a result, it was not possible to find a change in the composition of the investment in the four markets produced by the creation of the joint market. Secondly, vector autoregressive models were estimated and tested for structural breaks in the parameters. However, these models were not found to be informative. In conclusion, it was not possible to reject the Felstein-Horioka hypothesis, supporting the idea that liberalization is not enough to generate capital flows between markets.</p></abstract>

Influencia del directorio en el desempeño del Mercado Integrado Latinoamericano

La presente investigación tiene como objetivo comprobar si características de la composición del directorio, tales como porcentaje de mujeres, independencia del directorio o tamaño y concentración de propiedad del Mercado Integrado Latinoamericano (MILA), contribuyen en el desempeño económico de las empresas. Como medidas de desempeño se utilizaron los indicadores ROA, ROE y Q de Tobin. Este estudio utiliza análisis de regresión con datos de panel mediante el Modelo Tobit, con paneles dinámicos y estáticos con efectos fijos a una muestra de 83 empresas. Se encontró evidencia de que el tamaño del directorio y la concentración de la propiedad influyen en el desempeño de las empresas.

Impact of corporate governance on the value of Latin American companies: evidence from the MILA

Corporate Governance is a mechanism that seeks to strengthen the control bodies and their efforts, by combining principles and techniques to invigorate the value of companies and generate confidence in investors and all Stakeholders. This research seeks to analyze the impact of corporate governance on the values of companies that belong to the Latin American Integrated Market (MILA). The financial statements of the 97 companies from the years 2012 to 2018 were analyzed using a statistical panel data model to establish the relationship between the corporate governance variables and the financial performance variables. Lastly, it is concluded that non-economic mechanisms such as the implementation of adequate control policies positively influence the value of companies and generate support for investors.

A multiobjective credibilistic portfolio selection model. Empirical study in the Latin American integrated market

This paper extends the stochastic mean-semivariance model to a fuzzy multiobjective model, where apart from return and risk, also liquidity is considered to measure the performance of a portfolio. Uncertainty of future return and liquidity of each asset are modeled using L-R type fuzzy numbers that belong to the power reference function family. The decision process of this novel approach takes into account not only the multidimensional nature of the portfolio selection problem but also realistic constraints by investors. Particularly, it optimizes the expected return, the semivariance and the expected liquidity of a given portfolio, considering cardinality constraint and upper and lower bound constraints. The constrained portfolio optimization problem resulting is solved using the algorithm NSGA-II. As a novelty, in order to select the optimal portfolio, this study defines the credibilistic Sortino ratio as the ratio between the credibilistic risk premium and the credibilistic semivariance. An empirical study is included to show the effectiveness and efficiency of the model in practical applications using a data set of assets from the Latin American Integrated Market.

ANÁLISIS DEL MARCO TRIBUTARIO DE LOS PAISES MIEMBROS DEL MILA Y SU EFECTO EN LA NEGOCIACION DE ACCIONES ENTRE PAISES

<p>El mercado integrado latinoamericano (MILA), conformado por las bolsas de valores de Chile, México, Perú y Colombia, es una de las iniciativas más significativas en cuanto a la integración regional a través de un mercado bursátil que apunta no sólo a convertirse en el más grande en América latina, sino además en una plaza sólida y atractiva en la que es posible negociar títulos de renta variable, entre otros productos.</p><p>Sin embargo, esta integración no se ha dado de la manera esperada debido a las asimetrías regulatorias existentes entre los mercados que lo integran. El propósito de esta investigación es analizar las asimetrías tributarias existentes entre los países miembros del MILA y si estas tienen un efecto en la integración de los mercados; para la investigación se realiza un comparativo de las tarifas de los impuestos de los diferentes países asociados a la compra y venta de acciones en personas jurídicas, con base en esta información, se desarrolla un modelo en Excel con el cual se ejemplifica una inversión hipotética en los distintos mercados que conforman el MILA.</p>

The need and convenience of harmonizing cross-border takeover regulation in the Pacific Alliance; Lessons from the U.S., U.K. and E.U. experience

This article will answer the question of whether or not it is necessary and/or convenient to harmonize cross-border takeover regulation in the context of a Latin American economic block such as the Pacific Alliance. To this effect an overview of what the Pacific Alliance is, and the way how multiple economic sectors and areas have been integrated during the recent years will be made, specifically focusing on the creation and legal framework of the Latin American Integrated Market. Also, a general overview of the current takeover regulations of the four member countries will be analyzed in order to see where supranational regulation and harmonization is further needed in order to enhance and deepen the integrated market and the economic block as such. An analysis of the main lessons rendered throughout recent history from takeover regulation systems such as the U.S., U.K. and E.U. will allow us to make closing remarks[1].[1]This research was made by the author after having taken the “Takeover Regulation” course taught by Dr. David Kershaw at the London School of Economics Executive LLM Program.

El informe de auditoría en los países del MILA

Objetivo: Realizar una revisión de los informes de auditoría de las Compañías de los países pertenecientes al Mercado Integrado Latinoamericano–MILA (Colombia, Perú, Chile y México), respecto al cumplimiento de los aspectos que se deben considerar según las Normas Internacionales de Aseguramiento de la Información para el periodo 2010 a 2018. Método: investigación de carácter cualitativa, mediante análisis documental realizado a los párrafos de énfasis, de otros asuntos y de cuestiones clave. Resultados: se encontró que el cumplimiento de la norma ha sido satisfactorio, en especial en lo referente a cuestiones adicionales de información, se observa que se ha aplicado las normas, incluso antes de la obligatoriedad que se tiene para los países estudiados. Discusiones: las llamadas BIG4 son las firmas que mayor número de párrafos de énfasis, otros asuntos y cuestiones claves emiten, haciendo referencia principalmente a la adopción de normas, políticas contables y bases para la opinión. Conclusiones: las cuestiones adicionales que se revelan en el informe de auditoría podrían tener un efecto en la toma de decisiones de los usuarios ya que revela información adicional para los usuarios de la información.

Impacto del cambio de calificación de riesgo país en los precios de cotización de los activos de renta variable en el mercado integrado latinoamericano (MILA)

La integración de los mercados bursátiles se da con el objetivo de crear relaciones comerciales mediante acuerdos que buscan el beneficio de los países. El mercado integrado latinoamericano (MILA) busca fomentar el desarrollo del mercado bursátil de Perú, Chile, Colombia y México y ofrecer mayores oportunidades de inversión. Estas integraciones le permiten a los inversionistas encontrar distintos activos fi-nancieros en los cuales invertir sus excedentes de capital a partir de la rentabilidad esperada y el nivel de riesgo, es entonces cuando el riesgo país se convierte en un indicador para la toma de decisiones, ya que las calificadoras de riesgo evalúan las condiciones existentes en una economía y sus vinculaciones con otras. Por lo anterior, se busca evaluar el impacto del cambio de calificación de riesgo país en los precios de los activos de inversión de renta variable del MILA en el periodo 2010-2017 con el fin de identificar la existencia de retornos anormales acumulados en los activos estudiados, utilizando la metodología de estudio de evento, usando el retorno anormal acumulado (CAR), además pruebas de linealidad a través de modelos EGARCH. La metodología planteada permitió conocer que no se evidencia un impacto en los precios de las acciones de las empresas pertenecientes al MILA. Ahora bien, el hecho de que no haya suficientes estudios al respecto del MILA y las oportunidades de inversión que este ofrece, abre una frontera de posibilidades para estudiar el impacto que tienen los mercados de capitales de estas economías.

CSR communication through Facebook in the Latin American integrated market (MILA)

PurposeThis study aims to analyse CSR communication in the Latin American Integrated Market companies using Facebook, by studying disclosure and its determinants along with the legitimacy and interactivity of CSR posts.Design/methodology/approachA content analysis of Facebook posts and an index were developed to establish disclosure levels explained by regression modelling. In addition, an analysis of Facebook posts, reactions and comments was carried out.FindingsContent analysis shows that most of the posts correspond to the categories of society and environment. Regression modelling shows there is a strong association between corporate and board characteristics and disclosure levels. In spite of the dialogic character of Facebook, interactivity levels of messages are low, although high levels of legitimacy are observed in posts by consumer and financial companies.Research limitations/implicationsThis study examines companies included in the Latin American Integrated Market. The generalisation of the results is limited to this context.Practical implicationsUnderstanding CSR communication may enable companies to relate more effectively with their stakeholders and possibly change their practices as a result of the feedback provided.Originality/valueThis study offers an important contribution to the literature on CSR communication by performing an analysis of information disclosure on Facebook and its explanatory factors. Another contribution of this study is its examination of the legitimacy and interactivity of CSR information disclosure in Latin America, a relatively understudied region.

Corporate governance and international bond issues by Latin American corporations

This paper analyses the relationship between corporate bond issues and the existence of corporate governance frameworks that influence the development of financial markets by reducing information asymmetries and conflicts of interest. To this end, the international corporate bond market is reviewed and corporate governance standards in Brazil and in the four countries belonging to the Latin American Integrated Market (MILA) —Chile, Colombia, Mexico and Peru— are evaluated using a bond issues indicator developed by the Economic Commission for Latin America and the Caribbean (ECLAC), the Andean Development Corporation (CAF) and the Inter-American Development Bank (IDB). The evidence gathered using a probit panel model and a pooled probit model indicates that adherence to corporate governance standards can increase the likelihood that a firm will be able to carry out a successful international bond issue.

A CREDIBILISTIC MEAN-SEMIVARIANCE-PER PORTFOLIO SELECTION MODEL FOR LATIN AMERICA

Many real-world problems in the financial sector have to consider different objectives which are conflicting, for example portfolio selection. Markowitz proposed an approach to determine the optimal composition of a portfolio analysing the trade-off between return and risk. Nevertheless, this approach has been criticized for unrealistic assumptions and several changes have been proposed to incorporate investors’ constraints and more realistic risk measures. In this line of research, our proposal extends the mean-semivariance portfolio selection model to a multiobjective credibilistic model that besides risk and return, also considers the price-to-earnings ratio to measure portfolio performance. Uncertain future returns and PER ratio of each asset are approximated using L-R power fuzzy numbers. Furthermore, we consider budget, bound and cardinality constraints. To solve the constrained portfolio optimization problem, we use the algorithm NSGA-II. We assess the proposed approach generating a portfolio with shares included in the Latin American Integrated Market. Results show that this new approach is a good alternative to solve the portfolio selection problem when multiple objectives are considered.

Small consequences of a major agreement: the MILA case

PropósitoEsta investigación entrega evidencia sobre los efectos del acuerdo MILA respecto a mejoras en la eficiencia de los mercados accionarios involucrados.Diseño/metodología/enfoqueMedimos eficiencia estudiando la reacción de los mercados accionarios tras anuncios de resultados utilizando un modelo de mercado ajustado por heteroscedasticidad condicional (GARCH). Además, consideramos las pruebas de estudios de evento más utilizadas en la literatura para 3,399 eventos en los 4 países involucrados en el acuerdo MILA.ResultadosContrario a lo esperado, los resultados muestran que el acuerdo MILA genera aumentos marginales en la reacción frente a anuncios corporativos, lo cual se traduce en mejoras parciales de la eficiencia de mercados accionarios. Sin embargo, la evidencia muestra que el MILA sí favorece a la cointegración, lo cual va en línea con estudios previos.Implicancias prácticasEsta investigación entrega evidencia para reguladores de que un acuerdo de integración bursátil promueve cointegración entre mercados, pero no es un elemento que por sí solo asegure una mejora en eficiencia. Para alcanzar mayores beneficios del acuerdo MILA, se requieren cambios adicionales a nivel de mercado accionario y de regulación.Originalidad/valorEste es el primer estudio que analiza el efecto de un acuerdo de integración bursátil en la eficiencia de los mercados accionarios, expandiendo lo que ha sido ya encontrado en la literatura financiera respecto a la influencia de estos acuerdos en cointegración.

Board gender diversity and earnings quality. Evidence from the Latin American integrated market (MILA)

Board gender diversity is an issue of recent interest in corporate finance research. Nonetheless, there are too few studies about the influence of female directors on earnings quality in the developed markets. This situation is not better for emerging markets, where, except for China, studies like this are almost nonexistent. Consequently, this paper sheds light on the relationship between board gender diversity and earnings quality in Latin America, focusing on the listed firms in Mexico, Chile, Peru, and Colombia, which integrate the Latin American Integrated Market (Mercado Integrado Latino Americano or MILA in Spanish). With a data-panel of 361 observations from the period between 2002 and 2014, this work performs OLS regressions that indicate the existence of an inverted U-shaped relationship between board gender diversity and earnings manipulation, after controlling for other variables such as size, leverage, ROA, operating cash flow, accounting losses, and industry. Furthermore, results indicate the existence of a minimum level of female directors, 30.8% of board members, from which more board gender diversity leads to higher earnings quality.

Is the Virtual Integration of Financial Markets Beneficial in Emerging Markets? Evidence from MILA

ABSTRACTThis article analyzes whether the Latin American Integrated Market (MILA) has been beneficial for its participants. Using a dynamic conditional correlation (DCC) model proposed by Engle (2002), we found evidence that creating MILA increased the correlation levels in stock returns of member countries. Evidence indicates that this increase occurs mainly due to the increase in traded volume in the country with the least developed stock market—Peru.In short, findings suggest that in an integration process such as MILA, as stock market members differ, in terms of stock market development, the markets will benefit from the integration. However, in the long term these benefits dissipate over time.

An Exploratory Study on Nonlinear Causality Among the MILA Markets

ABSTRACTAccording to conventional portfolio theory, an increase in the interconnectedness of international financial markets may reduce the potential for constructing diversified portfolios. This article explores the implications of the creation of the Latin American Integrated Market (MILA)1 over the dependence structure of its members using correlation and cointegration analysis as well as linear and nonlinear Granger causality tests. The creation of MILA aimed to enhance the integration process that Latin American financial markets “naturally” present while still providing diversification opportunities to investors. The results of our empirical analysis suggest that such objective is being achieved. Evidence of a rise in cross-country linear correlations and their linear causal relationship supports the idea of an increasing financial integration process in the region, while the absence of cointegration and the weakening of the nonlinear causal relationship favors the creation of diversified regional portfolios. These findings provide valuable insights for investment portfolio designers, regulators, and supervisors.

Volatilidad del Mercado Integrado Latinoamericano: un enfoque multivariado

This paper describes Latin American Integrated Market (MILA) major stock indices yields´ volatility and addresses the degree of dependence among such stock indices, by means of a multivariate non normal constant conditional correlation GARCH model for 2009-2016. Evidence was found that there is a low degree of dependence among the yields and that segmentation exists among some of its members. The degree of integration is higher in Chile and Mexico followed by Peru and finally Colombia. Despite the differentiated volatility between members of the MILA, the dependency level among their yields has been stable over the reference period, suggesting long term market integration