One decade of evolution of corporate governance practices in Brazil/Uma decada de evolucao das praticas de governanca corporativa no Brasil.
| Autor | Leal, Ricardo Pereira Camara |
| Cargo | Texto en inglés - Ensayo |
-
Introduction
Corporate governance encompasses many aspects, such as ownership and control structures (Shleifer and Vishny, 1997; La Porta et al., 1998, 1999; Claessens et al., 2000, 2002), takeover defenses (Schwert, 2000; Field and Karpoff, 2002), executive compensation (Brick et al., 2006; Adams and Ferreira, 2008), and board of directors size and composition (Hermalin and Weisbach, 1991; Yermack, 1996; Eisenberg, Sundgren, and Wells, 1998). These governance mechanisms can be adopted simultaneously or alternatively. Many international studies used broad firm-level indices based on these aspects to gauge the quality of corporate governance practices (Klapper and Love, 2004; Drobetz, Schillhofer, and Zimmermann, 2004; Bhagat and Bolton, 2008; Black, Carvalho, and Gorga, 2012).
There have been many initiatives to improve corporate governance practices and investor protection in Brazil. The "New Law of Corporations", Law 10,303 of 31 October 2001, and the Brazilian Securities Commission (Comissao de Valores Mobiliarios, CVM) Instruction 480 of 7 December 2009, which introduced the Reference Form (Formulario de Referencia or FR) with many additional and more detailed disclosure requirements, are two very important recent pieces of regulation. The Code of Best Practices produced by the Brazilian Institute of Corporate Governance (IBGC) and the "Corporate Governance Recommendations" advanced by CVM are two compilations of recommended best practices, even so, there is no "comply or explain" requirement in Brazil. The Securities, Commodities and Futures Exchange of Brazil (BM&FBovespa) introduced three premium segments in 2000. Companies join them voluntarily and commit to comply with their corporate governance and disclosure listing requirements. The three premium lists are called Level 1, Level 2, and Novo Mercado, with increasingly more demanding corporate governance and disclosure stipulations. The general non-premium segment of the exchange is called the traditional market. The exchange designed the BovespaMais segment for small and midsize companies and allows for small-size fundraising transactions and gradual capital market access. The number of companies listed in the segment is very small, in many years, just one company. Leal (2011) provides more details about these initiatives and Carvalho and Pennacchi (2011) offer more on the premium listing segments.
The purpose of this article is to analyze the evolution of a broad corporate governance index (CGI) that provides a comprehensive description of firm-level corporate governance practices of Brazilian firms from 2004 to 2013. The index is a score derived from publicly available company information used to answer questions in a questionnaire. The questionnaire includes questions on the aforementioned corporate governance aspects. Leal and Carvalhal (2005, 2007) designed the first versions of the CGI questionnaire with 15 and 24 questions, respectively, in a project sponsored by the Inter-American Development Bank (IADB) in 2003. After 2004, the IBGC has been sponsoring the annual collection of the CGI to promote better corporate governance practices in Brazil. The IBGC supported questionnaire introduced in 2004 has 20 questions. We have used this later version of the questionnaire to compute the CGI score in Carvalhal and Subrahmanyam (2007), Leal et al. (2009, 2010), Carvalhal and Nobili (2011), Carvalhal (2012), and Barros et al. (2015).
Our contribution in this article is to offer a portrait and discussion about the evolution of Brazilian corporate governance practices captured in the 2004 version of the CGI in listed companies. We take stock of an important decade for Brazilian corporate governance practices, beginning with the listing of the first IPO in Novo Mercado in 2004, through the IPO wave years of 2004-2007, and the international crises period in the remainder of the sample. We point out what improved and what still requires more corporate effort. As a by-product, the article offers many citations of the recent Brazilian literature on the topic.
This article is closely related to Black, Carvalho, and Sampaio (2014) who present the evolution of their questionnaire based on a survey for the years 2004, 2006, and 2009. Their results stem from a more limited sample in terms of the number of firms and years surveyed because they rely on company responses. They do not obtain all of their answers from publicly available information. On the other hand, they are able to offer more details about some aspects of Brazilian corporate governance practices than we do. Silveira, Barros e Fama (2006) and Silveira and Barros (2008) present results for 2002 from a similar score developed independently by professor Alexandre di Miceli da Silveira around the same time. Leal and Carvalhal-da-Silva (2005, 2007) provide details on a 15-question questionnaire for the 1998-2002 period and for a 24-question questionnaire for 1998, 2000, and 2002, which were earlier versions of the CGI.
Lima and Sanvicente (2013) also computed a similar score for their analysis of the impact of corporate governance practices on the cost of capital of Brazilian listed companies for the even years between 1998 and 2008. Their index contains a few questions that are not present in the 2004 version of the CGI analyzed herein, such as those regarding the presence of institutional investors as relevant shareholders, the Chief Executive Officer (CEO) or Chief Finance Officer (CFO) not acting as the key investor relations person as well, or the timely filing of information with CVM. There are also minor differences in terms of the assignment of questions to subindices.
A lower cost of capital, or a higher market valuation, is an important benefit for the adopters of better corporate governance practices (Leal and Carvalhal-da-Silva, 2007; Lima and Sanvicente, 2013; Black et al., 2014). Leal and Carvalhal-da-Silva (2007) and Black et al. (2014) report about the positive impact of corporate governance practices of Brazilian listed firm on their market valuations. They affirm that financial disclosure is the aspect of their respective corporate governance indexes with the greatest impact on shareholder value. Carvalhal and Nobili (2011) use arbitrage portfolios and find lower valuations for firms with low corporate governance scores. Lima and Sanvicente (2013) used the well-known Gordon model with perpetual growth in dividends to estimate the cost of equity. They find a significant negative relationship between the cost of equity and their corporate governance index and suggest that better-governed firms lower their cost of capital. They also conclude that the most important component of corporate governance practices is disclosure.
The next section describes the CGI and the methodology used to obtain the index. Section 3 describes the sample. Section 4 presents the empirical results about the evolution of the CGI from 2004 to 2013. Section 5 concludes.
-
A Corporate Governance Practices Index for Brazil
The use of broad firm-level corporate governance indices has become common in the international literature (Klapper and Love, 2004; Drobetz et al., 2004; Bhagat and Bolton, 2008; Black et al., 2012). In 2003, two of the authors developed an initial version of the corporate governance index (CGI) as a by-product of a project sponsored by the IADB (Leal and Carvalhal, 2005, 2007). The IBGC has supported the calculation of the CGI since 2004. The earlier version of the CGI was based on 24-question questionnaire. The IBGC-sponsored CGI contains 20 questions that resulted from a revision of the initial questionnaire and was validated by corporate professionals and IBGC staff.
The current CGI has 20 questions. They cover four broad dimensions: disclosure; board composition and functioning; ethics and conflicts of interest; and shareholder rights. These dimensions may be somewhat arbitrary but are helpful for presentation purposes. Each question has a "yes" or "no" answer. The question scores 1 if the answer is "yes", otherwise the score is 0. We also score 0.5 to differentiate companies that partially adopt certain corporate governance practices in some questions. The index is the simple sum of the scores for each question. There is no weighing among questions. The maximum index value is 20. The CGI score is drawn from public information disclosed by listed firms, such as company filings, their FRs (the standard form for CVM filings since 2009), charters, and annual reports. We collect the data from the websites of the company, CVM, and BM&FBovespa. Table 1 shows the CGI questions and the criteria used to answer them. The questions are based on good corporate governance practices according to international standards and recommendations of IBGC, CVM, and BM&FBovespa.
The use of an objective index to measure corporate governance practices avoids the biases present in subjective qualitative interviews or surveys. Those that volunteer to answer them may be the ones with the good answers. The reply rates of surveys and interviews may be low, rendering their representativeness questionable. The most important limitation of our objective approach is that we cannot ask everything we would like because we rely on public information availability to obtain our answers. Another limitation is that we cannot capture the nuances that transpire in interviews or surveys.
The remainder of this section provides a brief review of the literature associated with each of the four dimensions used for grouping questions.
2.1. Disclosure
The first CGI dimensions contains six disclosure of information attributes: (i) policies and mechanisms to handle conflict of interest and/or related party transactions; (ii) compensation, separating the amounts paid to senior management and board members, and its variable and fixed components; (iii) unqualified auditor opinion in the last five years; (iv) annual report...
Para continuar a ler
PEÇA SUA AVALIAÇÃOCOPYRIGHT GALE, Cengage Learning. All rights reserved.
