Stock liquidity and second blockholder as drivers of corporate value: Evidence from Latin America

- The study examines the relationship between firm value and blockholder control in three dimensions: presence, contestability and dispersion.
- Blockholder contestability becomes effective on firms with high liquid stocks.
- The existence and type of a second blockholder within firms with multiple blockholder structures becomes a critical factor in explaining the effect on firm value.
- Results show that blockholder voice (monitoring) versus exit (trade) models are complementary rather than substitute mechanisms for firm corporate governance.

This paper examines the relationship between firm value and blockholders in Latin America.Econometric results for a comprehensive data set of more than 550 firms listed in the six largest stock markets of the region support a positive effect of variables measuring the existence, contestability, dispersion and identity of blockholder on performance (Tobin's Q) only for highly liquid stocks. The identity of the second largest blockholder (family, foreign, financial or the State) emerges as critical for such effects. The study supports that the voice and exit models are complementary rather than substitute mechanisms for firm corporate governance.