Latin American Capital Markets

•CHAPTER 14Corporate Governanceand Capital Market Development:Recent Experiences in Latin AmericaMike LubranoIn the wake of the 1995 Mexico crisis and the 1997 Asian financial crisis, it has becomemore widely recognized that good corporate governance is a necessary conditionfor well-functioning financial markets. At the very core of these crises was thefailure of both boards of directors and financial markets to exercise effective oversightand provide a check against the financial excesses undertaken by enterprises and theirmanagement.The corporate scandals that erupted in 2002 in the United States havefurther focused the thinking of policymakers, financial intermediaries, company chiefs,and the investing public on the importance of board oversight, shareholder rights, andtransparency and disclosure for financial sector stability and economic growth.The interrelationship between capital market development and corporategovernance has been characterized as "neither simple nor linear; rather, it is in the natureof a complex feedback loop, a dynamic process responsive to many factors" (Jordanand Lubrano 2002). How effective capital markets are in exerting governanceover corporations is in part a function of legal rules; in part a question of business culture;in part the outcome of incentives facing companies, investors, and intermediaries;and in part a question of institutional capacity.This chapter looks at a set of corporategovernance initiatives driven by capital markets that have been undertaken in LatinAmerica in recent years and tries to draw some tentative conclusions about their effectiveness.'In particular; it highlights one striking characteristic of recent efforts—thecombination of mandatory legal rule changes and voluntary private or quasi-privatemechanisms for promoting better corporate governance.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub1Portions of this chapter were published in earlier form in Jordan and Lubrano (2002).