Effect of free float ratio on the behavior of shares valuation in companies listed in Latin American capital market

Abstract

Free float is generally defined as the number of outstanding shares minus the number of shares that are restricted from trading. This restriction comes from the fact that these shares belong strategic investors who do not usually negotiate their holdings. The ownership structure of the capital of each company can condition share’s prices and trading volume. The objective of this chapter is to identify if there is a relationship between floating capital ratio and volumes operated, volatility of prices and performance of the shares. The data analyzed correspond to Latin American companies listed in Argentina, Brazil, Chile, Peru and Colombia at the end of 2016. The applied statistical methodology is a simple linear regression. As a result of the study, it is observed that, in Peru and Colombia, greater floating capital affects the equity’ retorn in the market. The contribution of this research is the analysis of the free float impact on the explained variables in stock markets of Latin American countries. This study presents two limitations; the use of data from a cross-sectional sample and the number of companies that formed the sample.