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The Chilean Corporate Governance System: The Effect of Non-Bank Financial Intermediaries and Audtiors on Earnings Quality and Disclosure Levels
Veronica Pizarro,
Pontifica Universidad Catolica Valparaiso
Sakthi Mahenthiran, Butler University
David Cadematori, Pontifica Universidad Catolica Valparaiso
Roberto Curci, Butler University
ABSTRACT. In 1980, Chile privatized its social security system, and currently there are six major private pension funds managing US$83 billion. The pension funds can appoint representatives to the firms’ board and influence the choice of external auditors. Additionally, from January 2009 listed companies in Chile will follow IFRS. Thus, financial intermediaries and auditors are influencing Chile’s transition to a market-based governance system. The study uses data from 70 firms from 1995-2005 to test the impact of these institutional changes on earnings quality, and disclosure levels. The pension fund ownership does not improve earnings quality, and higher the auditor reputation greater the level of disclosures. The finding supports that auditor reputation may help insider owners of low performing firms attract investment by managing earnings.
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