The State as a Small Shareholder: Small Equity, Huge Results

Abstract

This article analyzes the effect of having the State as a non-controlling shareholder in Business Groups (BG) during times of institutional environment instability. The main argument is that small equity holdings by the government represent a way to establish a political connection, and the consequences include performance improvement in more than one dimension. Our final sample consisted of 1,502 observations of 285 Brazilian BGs, from 2001 to 2010. Findings suggest that the institutional environment significantly affects BGs performance and size, and that this effect notably moderated when the government is a minority shareholder.