2018 GCGC

1-2 June 2018

The Hidden Costs of Being Public Evidence from Multinational Firms operating in Emerging Markets


Pablo Slutzky

Assistant Professor of Finance, Robert H. Smith School of Business, University of Maryland


Pedro Matos

Associate Professor of Business Administration / Darden school of Business- University of Virginia


This paper studies how firms deal with business regulations that limit their operations. I first exploit a natural experiment to show that the ownership structure of a firm affects its degree of compliance with regulations, with publicly listed firms complying more than privately held ones. Then I show that this differential compliance imposes a burden on listed firms that helps explain the patterns of M&A activity in emerging markets. When the level of market regulations increases, private firms acquire listed ones, and when the level decreases the results are reversed. I find that this effect is stronger for listed firms that are subject to stricter auditing and enforcement standards, suggesting that scrutiny plays an important role. Taken together, these results uncover an additional cost faced by listed companies, identify a new driver of M&A transactions in emerging markets, and show evidence that high levels of regulation lead to opaque corporate structures.

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