Value and Governance of the Brazilian Corporations: How is the Relationship between these Variables?

Abstract

This study estimated the quality of governance practiced by a significant sample of Brazilian publicly traded companies between 2002 and 2006, and related it to risk, performance and value. An index composed of twenty questions, with all answers in binary form, was constructed to measure the quality of governance. Hausman test was used and the results showed endogeneity between governance and value. Afterwards the structural equations method was applied and constructed several models involving the relationships among governance; performance measured by roe (return on assets) and ets (ebit-to-sales); risk measured by the wacc (weighted average cost of capital), and value measured by mts (market-to-book sales) and mtbv (market-to-book value). Statistically significant results between higher levels of governance, lower risk, better performance and higher value were observed.