Mexico: Protecting investors from self-dealing

Authors: Melissa Johns and Jean Michel Lobet
Publication: Celebrating Reforms 2007 (263.5 KB PDF)

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Overview

In 2004 Mexico’s securities market was a tiny fraction of what might be expected for an economy of its size. And while Latin America received 9% of global private equity flows, Mexico, with more than a third of the region’s income, received only a tenth of that. More companies were delisting rather than issuing new shares on the Mexican stock exchange. It was time for reform.

Mexico overhauled its securities laws, with useful input from stakeholders. A new law attacked self-dealing, a major problem in the country, to better protect investors. Mexico also extended corporate governance obligations to subsidiaries. In addition, listed companies were required to set up committees of independent directors. This case study tracks how the changes in the law were enacted to help protect investors and boost their confidence in Mexican markets.

Main Findings

• Market indicators suggest boosted investor confidence following the new securities law. In the 2 quarters immediately following passage of the new law, the value of equities on the Mexican stock exchange increased by 13.1% (year-over-year) in the first quarter of 2006 and 15.1% in the second.
• Within a year of passing the law, the Mexican stock market recorded a historical high in foreign direct investment: $128,813 million—a 20.89% increase from the beginning of 2006. (While there are many influences on investment flows, such figures support the general argument that Mexico has become more attractive to investors.)