Jean P. Sepúlveda

Family Ownership and Firm Performance in Chile: A Note on Martinez et al.’s Evidence

The authors revisit the evidence presented in Martinez et al. using new data and estimation techniques that take into account unobserved firm heterogeneity. The results of the earlier study are found to be robust to the new procedures because performance of family-controlled firms continues to be superior to that of nonfamily firms. The authors then add the risk dimension to the earlier analysis using a risk-adjusted return on assets (ROA) variable, and family-controlled firms again performed better. A test of the standard deviations of ROA for both firm categories revealed that family-controlled firms not only perform better but also show less volatility in their returns.

Stock returns in emerging markets and the use of GARCH models

We use the Hinich portmanteau bicorrelation test to detect for the adequacy of using GARCH (Generalized Autoregressive Conditional Heteroscedasticity) as the data-generating process to model conditional volatility of stock market index rates of return in 13 emerging economies. We find that a GARCH formulation or any of its variants fail to provide an adequate characterization for the underlying process of the 13 emerging stock market indices. We also study whether there exist evidence of ARCH effects, over windows of 200, 400 and 800 observations, using Engles LM (Lagrange Multiplier) test, and find that there exist long periods of time with no evidence of ARCH effects. The results suggest that policymakers should use caution when using autoregressive models for policy analysis and forecast because the inadequacy of GARCH models has strong implications for the pricing of stock index options, portfolio selection and risk management. Specially, measures of spillover effects and output volatility may not be accurate when using GARCH models to evaluate economic policy.

The factors affecting the risk attitude in entrepreneurship: evidence from Latin America

This article departs from the traditional analysis of the effects of risk aversion in entrepreneurship to study the determinants of entrepreneurial risk aversion in developing a new venture and becoming an entrepreneur. We took fear of failing as a proxy for risk aversion and applied our analysis to the most important Latin American economies. We observed that being male, having more years of formal education and believing to have the necessary skills to develop a new venture decreased the probability of feeling a fear of failing and, thus, eventually increased the probability of developing a new venture. Age affects risk quadratically (first positively, but after some point, negatively), and if there is a prior experience of having shut down a business, risk aversion increases, that is, the probability of feeling a fear of failing, which reduces the probability of becoming an entrepreneur.

On the relationship between concentration and competition: evidence from the Chilean private pension system

I use Panzar and Rosse (1987) methodology to estimate the degree of competition among Pension Fund Administrators (PFAs) in the Chilean private pension system for the period 1996 to 2008. The results indicate that the industry can be described as a cartel (or monopoly) during this period. There is evidence that in this industry there is a negative, and statistically significant, correlation between concentration and competition.

Financial Markets and Politics: The Piñera Effect on the Chilean Capital Market

The 2010 presidential election in Chile marked a change from the center-left coalition that governed the country for twenty years to a center-right coalition led by politician and businessman Sebastian Piñera. We study the effect that Piñeras presidential campaign had on the Chilean capital market. By using a panel of forty-nine companies during a period of thirteen months prior to the election, we find that there was a positive and significant effect on the capital market because of the expectation that Piñera would be elected president. That expectation continued throughout the entire presidential campaign.

The complementarity effect: Effort and sharing in the entrepreneur and venture capital contract

This paper focuses on the relationship between the venture capitalist and the entrepreneur. In particular, it analyses how both players’ unobservable effort levels affect the equity share that the entrepreneur is willing to cede to the venture capitalist. We solve the entrepreneur’s maximization problem in the presence of double-sided moral hazard. In this scenario, we show that the venture capitalist’s share is binding and, therefore, there is no efficiency wage. We simulate the model and show that the entrepreneur’s effort does not monotonically decrease in the share allocated to the venture capital, while the venture capitalist’s effort does not monotonically increase in his share. We show that as efforts tend to be more complementary, the project cash flows are distributed nearly equally, at approximately 50% for each partner. This theoretical finding is actually observed in real contracts between entrepreneurs and venture capitalists.

Earnings management and performance in family-controlled firms: Evidence from an emerging economy

This study introduces an earnings management dimension to compute premanipulated accounting performance to determine whether family-controlled firms have higher performance relative to non-family-controlled firms. Using a premanipulated return on assets measure for Chilean firms dataset, we find that the premanipulated performance of familycontrolled firms is superior to that of non-family-controlled firms. We also show that the presence of institutional investors in the firm’s ownership structure has a positive influence on performance of family companies. The results suggest that earnings management behavior is not sufficient to explain the higher performance of family-controlled firms that has been reported in the literature.