Abstract
This article analyzes conflicts between principals that led to activism by one large Brazilian government-owned investor as a minority shareholder and verifies the antecedents, means employed, apparent motivations, and effectiveness of its reactions (Goranova & Ryan, 2014). It examines the cases of three large high ownership concentration listed companies using solely public sources. Poor performance was a frequent conflict antecedent. No evident trade-off between activism and corporate governance (CG) practices emerged. High ownership concentration influenced the way the investor reacted and its success because opposition through internal CG mechanisms was usually not successful and led to legal proceedings. The limitations of the regulatory framework became evident from the mixed outcomes of these proceedings. The investor was not exclusively financially motivated and it occasionally opposed the interests of other minority shareholders to follow government policy. These findings illustrated how high ownership concentration rendered difficult the mitigation of principal-principal conflicts even for a large government-owned investor and help explain the failure of previous econometric studies to relate activism, quality of CG practices and performance (Young, Peng, Ahlstrom, Bruton, & Jiang, 2008)
Highlights
In most markets, especially the emerging ones, high ownership concentration may lead to conflicts of interest between the major or controlling shareholders and minority shareholders, the so-called principal-principal conflicts, and abuse (Young, Peng, Ahlstrom, Bruton, & Jiang, 2008)
The antecedents of principal-principal conflicts are evident in Brazil, such as family ownership, high ownership concentration, less effective minority shareholder protection, low quality of corporate governance (CG) practices ratings, and majority shareholder abuse
The main conflicts of interest involving shareholders in Brazil are between principals, opposing controlling and minority shareholders, as is common in most countries
Summary
Especially the emerging ones, high ownership concentration may lead to conflicts of interest between the major or controlling shareholders and minority shareholders, the so-called principal-principal conflicts, and abuse (Young, Peng, Ahlstrom, Bruton, & Jiang, 2008). The evidence about the positive outcomes of engagements and activism is still not conclusive (Denes, Karpoff, & McWilliams, 2017; Aggarwal, Erel, Ferreira, & Matos, 2011; Gillan & Starks, 2007) This is the case in Brazil, even after recent changes that encourage activism, such a gradual reduction in ownership concentration and new laws, regulations, and self-regulations (de Almeida & Leal, 2020; Maranho, Bortolon, & Leal, 2020; Collares, 2020; Sonza & Granzotto, 2018)
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