Abstract

This paper investigates whether the adoption of good corporate governance practices influences the market value of Brazilian firms. For this purpose, we used an unbalanced panel over the period from 2002 to 2010, composed of 233 listed nonfinancial companies, for a total of 1,110 observations. Because of endogeneity problems such as omitted variables, simultaneity and the feedback effect, we employed dynamic multiple linear regression models, estimated by the systemgeneralized method of moments (System GMM). The results indicate that firms listed in one of the three premium corporate governance segments of the BM&FBovespa (Level 1, Level 2 and Novo Mercado) are priced higher by the market compared to firms listed in the traditional trading segment. Therefore, corporate governance has a positive effect on the market value of Brazilian firms.

Highlights

  • This paper investigates whether the adoption of good corporate governance practices influences the market value of Brazilian firms

  • We tested six specifications with the intention of answering the following question: Do Brazilian companies listed in premium corporate governance segments (L1, Level 2 (L2) and Novo Mercado (NM)) have higher market value compared to firms listed in the traditional market segment?

  • We formulated the following question: Do Brazilian companies listed in premium corporate governance segments (L1, L2 and NM) have higher market value compared to firms listed in the traditional market segment?

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Summary

Introduction

This paper investigates whether the adoption of good corporate governance practices influences the market value of Brazilian firms. In Brazil, the liquidation by the Central Bank in the 1990s of large privately owned banks whose insolvency had been masked by fraudulent accounting heightened concern with improving corporate governance standards in the country (CARVALHO, 2002) This preoccupation was an important factor leading to the creation of three premium listing segments in terms of governance requirements by the São Paulo Stock Exchange (BOVESPA1) in December 2000: Level I, Level 2 and Novo Mercado (New Market). Firms listed in these trading segments must have more transparent disclosure policies and provide greater protection for minority shareholders (BM&FBOVESPA, 2012)

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