STRUCTURAL REFORM AND FIRM PROFITABILITYIN DEVELOPING COUNTRIES

We extend agency theory to propose that structural reform positively impacts firm profitability indeveloping countries because the improvements in external monitoring that accompany structuralreform decrease the agency costs faced by firms. However, we also argue that not all firmsbenefit equally from structural reform because their agency problems are impacted differently.Hence, we propose that structural reform results in higher improvements in profitability fordomestic state-owned and domestic private firms than it does for subsidiaries of foreign firms.Results of the analyses of the largest 500 firms in Latin America support the arguments,suggesting that, contrary to the views of many critics of globalization, domestic firms are themain beneficiaries of structural reform in developing countries....