Formal institutions, ICSID arbitration and firm performance: evidence from Latin America

Sarela Enriquez-Perales (), Conrado Diego García-Gómez (), José María Díez-Esteban () and Edmundo Lizarzaburu ()
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Sarela Enriquez-Perales: University of Valladolid
Conrado Diego García-Gómez: University of Valladolid – Duques de Soria Campus, Calle Universidad S/N
José María Díez-Esteban: University of Burgos

Eurasian Business Review, 2023, vol. 13, issue 2, No 7, 429-464

Abstract: Abstract This paper analyzes how a country’s formal institutional quality impacts the performance of listed companies across different Latin American countries (namely, Argentina, Brazil, Colombia, Mexico, Peru, and Chile) and industries. Latin America provides a unique setting to address this question due to the region’s high institutional instability. The sample consists of 571 large listed companies, with a total of 8576 observations, for the period 2004–2019. Results show that the quality of a country’s formal institutions is positively related to firm performance, measured through two alternative variables (ROA and Tobin’s Q). Additionally, countries that are signatories of the ICSID agreement provide companies with a more stable environment in which to do business, which ultimately has a positive impact on their performance. However, as the number of cases recorded before the ICSID increases, the relationship turns negative. The paper provides a more comprehensive understanding of formal institutions by considering six alternative governance dimensions. Moreover, international arbitration is found to be a substitute for formal institutions in Latin American countries.

Keywords: Formal institutions; ICSID; Arbitration; Firm performance; Latin America (search for similar items in EconPapers)
JEL-codes: G15 G32 G34 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40821-022-00213-4

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