Emerging Markets Review xxx (xxxx) xxx

Contents lists available at ScienceDirect

Emerging Markets Review

journal homepage: www.elsevier.com/locate/emr

Determinants of corporate governance practices in Brazil

Antonio Gledson de Carvalho a, *, 1, Filipe Dal’Bó a, 2, Joelson Sampaio b, 3
a
Fundação Getulio Vargas School of Business Administration at São Paulo, Brazil
b
Fundação Getulio Vargas School of Economics at São Paulo, Brazil

A R T I C L E I N F O A B S T R A C T

JEL classification: We study the determinants of Corporate Governance (CG) practices in Brazil. Using hand
G18 collected data, we build CG subindices for Board Structure, Board Procedures, Minority Share­
G24 holders Rights, and Disclosure, and an overall CG index, BCGI, computed as the average of these
G30
four subindices. During our sample period, CG practices changed significantly: improvement was
G34
G39
stronger among firms in the High- than Low-CG requirement listings. Tangibility and Liquidity are
K22 and K29 the only variables that predict CG practices with some consistency. Most importantly, we find no
evidence that Tobin’s q predicts CG practices. This last result lowers the possibility of reverse
Keywords:
Brazil causation in analyses that use CG practices as determinant of firm value.
Corporate governance
Governance indices

1. Introduction

This article studies the determinants of corporate governance (CG hereon) in Brazil. It contributes to the literature in three different
fashions. First, it provides a description of the evolution of CG in Brazil in the 2010–2014 period. This period followed change in
regulation that occurred in 2009 and forced firms to disclose their CG practices (before 2009 one could access CG practices only under
voluntary disclosure). Thus, the evolution in CG during this period illustrates the effect of improved disclosure of CG practices. We

* Corresponding author.
E-mail addresses: gledson.carvalho@fgv.br (A.G. de Carvalho), filipe@live.fr (F. Dal’Bó).
1
FGV-EAESP, R. Itapeva, 474, 8o andar, São Paulo, SP, 01332–000, Brasil. Email: gledson.carvalho@fgv.br. Tel: (5511) 3799–7767.
2
Supera Parque Tecnológico, Avenida Dra. Nadir Aguiar, 1805, Predio 2, Sala 301, Ribeirão Preto, SP, 14056–680, Brazil. Email: filipe@live.fr.
Tel: (5516) 3315–0735.
3
FGV-EESP, R. Itapeva, 474, 13o andar, São Paulo, SP, 01332–000, Brasil. Email: joelson.sampaio@fgv.br. Tel: (5511) 3799–3362. We
acknowledge Claudio Bisso and Gabriel Sakai for their excellent research assistance. De Carvalho gratefully acknowledges financial support from
FAPESP under the project 2016–06826-6. Errors and omissions are our own responsibility.

https://doi.org/10.1016/j.ememar.2020.100771
Received 24 March 2020; Received in revised form 24 June 2020; Accepted 1 November 2020
Available online 6 November 2020
1566-0141/© 2020 Elsevier B.V. All rights reserved.

Please cite this article as: Antonio Gledson de Carvalho, Emerging Markets Review, https://doi.org/10.1016/j.ememar.2020.100771
A.G. de Carvalho et al. Emerging Markets Review xxx (xxxx) xxx

report a significant, non-uniform improvement in CG practices. Second, we study the determinants of CG. Given the significant change
in CG practices, one would be interested in understanding what drives such change.
Third, we contribute to the study of the endogeneity of Tobin’s q (as measure of firm value) in the regressions analysis of the effects
of CG. Many studies use Tobin’s q as proxy for firm value to show that firm-level corporate governance (CG) predicts firm value.4 Some
others use Tobin’s q to unveil what aspects of CG matter for firm’s value (e.g., (Black et al., 2020)). There are two possible problems
with these procedures: omitted variables and reverse causation biases. Both problems, if exist, cannot be eliminated. However, one can
assess whether they are relevant concerns. Omitted variable bias can be gauged using lower bounds,5 as proposed by Hosman, Hansen,
and Holland (Hosman et al., 2010); Altonji, Elder, and Taber (Altonji et al., 2005); Altonji et al. (Altonji et al., 2011); and Oster (Oster,
2017). (Black et al., 2014a; Black et al., 2014b; Black et al., 2020)) provide applications of lower bounds analysis. With respect to
reverse causation bias, the only way to assess its relevance is to study the determinants of CG and, hopefully, find that Tobin’s q does
not predict CG. However, to be credible, such inference requires strong methods (e.g., firm’s fixed effects with extensive control
variables) and construct validity of the CG measure: the CG index needs to be properly built (in fact measure governance) and predict
firm value. In spite of the importance of endogeneity, there are few studies on the determinants of governance using strong methods
and CG indices that predict Tobins’s q (we revise this literature down below).
Several factors drove changes in CG practices in Brazil along time. Beginning in the 1990s, some Brazilian firms that issued
American Depository Receipts (ADRs) had to adjust their CG practices to U.S. cross-listing requirements. In 1999, the Brazilian
Institute for Corporate Governance (IBGC, created in 1995) issued its first Code of Best Practices. In 2000, inspired by the German
Neuer Markt, the São Paulo Stock Exchange (previously called Bovespa, now B3) created four especial listings requiring improved CG
practices: Novo Mercado, CG Level 2, CG Level 1 and Bovespa-Mais6 (De Carvalho, 2002 and De Carvalho and Pennacchi, 2012,
describe the creation of these markets). In 2001, Brazil revised its Pubic Corporation Law,7 increasing minority shareholders’ rights.
Black et al. (Black et al., 2014a; Black et al., 2014b) track the evolution of CG during this period (they use a sample of firms that
voluntarily participated in three surveys).
More recently, in 2009, the Brazilian Security and Exchange Commission (Comissão de Valores Mobiliários, CVM) issued new
regulations on CG disclosure. Accordingly, firms have to fill an extensive report on CG practices (Formulário de Referência, FR). Finally,
in 2010, international generally acceptable accounting principles (IRFS) and consolidated financial statements became mandatory.8
These improvements in disclosure of CG practices provides a panel data on a broad number of firms. With such data, one can properly
track the evolution of CG over time, and study its determinants.
The literature on the evolution and determinants of CG is short, especially for emerging markets (see Claessens and Yurtoglu, 2013,
for a review). There are two approach to it: multicountry and country-case studies. There are two main multicountry studies (that
include both, emerging and developed countries). Durnev and Kim (Durnev and Kim, 2005) find that firm growth, need for equity
finance and inside ownership predict better CG (one should add that (Doidge et al., 2007), do not confirm these results). Klapper and
Love (Klapper and Love, 2004) find that capital intensity predicts worse CG. The main country case studies include India: Balasu­
bramanian, Black and Khanna (Balasubramanian et al., 2010) find that nothing predicts CG; Korea: Black, Jang and Kim (Black et al.,
2006b) find that only size and share price-volatility predict CG; and Turkey: Ararat, Black and Yurtoglu (Ararat et al., 2017) find that
firm size predicts better CG and state ownership, worse CG. The absence of good panel data on CG is an important constraint: all of
these studies, with the exception of the last one, use cross-section data. Thus, bias to the lack of control for firm fixed effects is a main
concern in this literature. There are many other studies on the determinants of CG. However, their findings are questionable because
they do not control for firm’s fixed effects, CG indices do not predict firm’s value or use components not related to CG (e.g., compliance
and gender issues).9
We build four indices for specific aspects of CG: Board Structure, Board Procedures, Minority Shareholders Rights, and Disclosure;
and an overall index (BCGI) is their average. Our indices are very similar to those developed in Black, De Carvalho, and Gorga (Black

4
Multicountry studies include those by Durnev and Kim (Durnev and Kim, 2005); Klapper and Love (Klapper and Love, 2004); Doidge, Karolyi
and Stulz (Doidge et al., 2007); Dahya et al. (Dahya et al., 2008); Bruno and Claessens (Bruno and Claessens, 2010); and Black et al. (2014). In­
dividual country studies are also numerous. From Brazil: Braga-Alves and Shastri (Braga-Alves and Shastri, 2011); Black, de Carvalho and Gorga
(Black et al., 2012); and Carvalhal-da-Silva and Leal (Carvalhal-da-Silva and Leal, 2005). Hong Kong: Cheung et al. (Cheung et al., 2007; Cheung
et al., 2011); and Lei and Song (Lei and Song, 2012). India: Balasubramanian, Black and Khanna (Balasubramanian et al., 2010); and Sarkar, Sarkar
and Sen (Sarkar et al., 2012). Korea: Black, Jang and Kim (Black et al., 2006a). Russia: Black, Love and Rachinsky (2006); and Kuznecovs and Pal
(Kuznecovs and Pal, 2012). Thailand: Limpaphayom and Connelly (Limpaphayom and Connelly, 2004); and Kouwenberg (Kouwenberg, 2006).
Turkey: Ararat, Black, and Yurtoglu (Ararat et al., 2017).
5
Lower bounds gauge the effect of the omission of a variable. They represent the coefficients that one would obtain if the regression (actually run)
included an omitted variable with some specific characteristics (correlation with the endogenous and included variables).
6
The CG requirements for each listing can be found at http://www.bmfbovespa.com.br/pt_br/listagem/acoes/segmentos-de-listagem/novo-
mercado/
7
Law 10.303, known as Lei das S.A.
8
Brazil did not adopt a “comply or explain” code.
9
Da Silveira et al. (Da et al., 2010) studied the determinants of corporate governance in Brazil and found that nothing predicts CG. However, their
dataset present several weaknesses. It covers from 1998 to 2004. In this period, there was not public systematic disclosure on CG. Furthermore,
Brazilian accounting standards were very weak. They used the little public information available to build their CG indices (including many
compliance elements). Thus, the quality of their indices and control variables is questionable. For instance, Carvalhal-da-Silva and Leal (Carvalhal-
da-Silva and Leal, 2005), find that these same CG indices do not even predict firm’s market value.

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Table 1
Governance elements: description and evolution.
2010 2011 2012 2013 2014

Board structure
Board independence subindex
BdIn1 Board includes one or more independent directors 0.52 0.55 0.58 0.57 0.59
BdIn2 Board has at least 30% independent directors 0.26 0.31 0.32 0.32 0.32
BdIn3 Board has at least 50% independent directors 0.17 0.16 0.16 0.17 0.18
BdIn4 CEO is NOT chairman of the board 0.70 0.74 0.81 0.83 0.85
Audit committee and fiscal board subindex
BdCm1 Audit committee exists 0.25 0.25 0.28 0.30 0.31
BdCm2 Permanent or near-permanent fiscal board exists 0.61 0.65 0.67 0.68 0.69
BdCm3 Company has either permanent fiscal board or audit committee which includes minority shareholder 0.43 0.53 0.54 0.58 0.60
representative

Board procedure
Pr1 Firm has system to evaluate CEO performance 0.45 0.50 0.56 0.57 0.58
Pr2 Firm has system to evaluate other executives 0.20 0.23 0.25 0.29 0.30
Pr3 Firm has code of ethics 0.37 0.43 0.58 0.64 0.69
Pr4 Specific bylaw to govern board 0.52 0.69 0.74 0.78 0.80

Minority Shareholder Rights

Sh1 Annual election of all directors 0.22 0.20 0.20 0.25 0.27
Sh2 Takeout rights on sale of control exceed legal minimum 0.42 0.48 0.50 0.54 0.57
Sh3 Arbitration of disputes with shareholders 0.47 0.51 0.53 0.53 0.54
Sh4 Firm has no authorized capital or provides preemptive rights 0.69 0.75 0.74 0.77 0.80
Sh5 Free float is at least 25% of total shares 0.63 0.64 0.65 0.75 0.79

Disclosure
Di1 Management holds regular meeting with analysts 0.62 0.67 0.73 0.72 0.68
Di2 Firm discloses annual agenda of corporate events 0.57 0.61 0.62 0.62 0.63
Di3 English language financial statements 0.44 0.48 0.49 0.59 0.63
Di4 MD&A discussion in financial statements 0.72 0.80 0.85 0.98 1.00
Di5 Annual financial statements on firm website 0.85 0.90 0.91 0.95 0.94
Di6 Quarterly financial statements on firm website 0.83 0.91 0.92 0.96 0.97
Di7 Auditor does not provide non-audit services 0.75 0.77 0.79 0.81 0.82
Di8 Big-four auditing 0.72 0.79 0.74 0.72 0.70

Description and averages of corporate governance elements used in the Brazilian indices, from 2010 to 2014. All averages are in the [0,1] interval,
where zero (1) represents very bad (good) corporate governance.

et al., 2012). However, we do not build indices for ownership structure and related party transactions ((Black et al., 2020; Matos,
2017), find that these aspects are of little relevance). Building our own indices (as compares to use readily available commercial
indices) increases significantly the construct validity of the indices, and the reliability of the analysis. Yet, this comes at a cost: One
needs hand collect information in the FR reports at CVM’s homepage10 (download the FR for each firm, in each year and manually
collect information). Then, it is necessary to detect and correct inconsistencies in the dataset. This process may easily consume two
years. This is why our dataset covers 2010–2014 period.
We report a consistent improvement in overall CG practices between 2010 and 2014. Furthermore, this improvement occurred in
the four aspects of CG practices. Improvement was stronger among companies in the higher-CG-requirement listings (Novo Mercado,
Level 2 and Bovespa-Mais) than among firms in the lower-requirement listings (Level 1 and Regular). With respect to the determinants
of overall CG, only Tangibility and Liquidity present statistically significant effects on CG. The effect of Tangibility comes mostly
through Board Procedures and Disclosure, and is strong on the subsamples of largest firms, non-manufacturing firms, and firms with
high-requirement listings. The effect of Liquidity comes mostly through Disclosure. There is no association between liquidity and
particular subsamples. For robustness, we checked whether results could be different for some subsamples of firms. We find no relevant
difference across subsamples. Finally, we find no evidence that Tobin’s q predicts CG.
This article proceeds as follows. Section 2 describes how we build our CG indices and our econometric methods. Section 3 describes
our data sources, samples, and explanatory variables. Section 4 describes the evolution of CG. Section 5 investigates the determinants
of CG practices. Section 6 concludes.

2. Methodology

2.1. Corporate governance indices

To compute corporate governance indices (CGIs), we follow the methodology developed in Black, De Carvalho and Gorga (Black
et al., 2010), and Black et al. (Black et al., 2014a; Black et al., 2014b). We build four CG indices covering Board Structure, Board

10
www.cvm.gov.br.

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Procedures, Minority Shareholder Rights, and Disclosure (we refer to these four indices as subindices). We also calculate an overall
Brazil Corporate Governance Index (BCGI) as the average of the four subindices. Each subindex is calculated as the average of binary
CG elements (coded as “1” if a firm has the attribute and “0” otherwise). A specific CG element is used only if (i) it is objectively
measurable and publicly available in the FRs (formulários de referência); (ii) it is often believed to correspond to good CG, sometimes
with empirical support, but often not; (iii) it is relevant to CG in light of the Brazilian rules, institutions and practices11; (iv) there is
reasonably complete data across firms; (v) there is reasonable variation across firms in our sample; and (vi) the element is not too
similar to another element.
Our BCGI is very similar but not identical to that of Black et al. (Black et al., 2014a; Black et al., 2014b). Because of the lack of
publicly available CG data at the time they conducted their studies, they used surveys to collect information. In contrast, we use only
publicly available data. By doing so, we increase the sample at the cost limiting our analysis to information covered in the FRs. The
main difference between our indices and theirs concerns disclosure. Their elements related to the use of international GAAP and
consolidated financial statements lost meaning after their universalization in 2009 and 2010. We also omit subindices for control of
related-party transactions (RPT) and ownership structure. Their RPT subindex consists mostly of the procedures that firms use to
approve RPTs and their disclosure. As FRs do not include RPT approval rules and the disclosure of RPTs became mandatory, the RPT
index became meaningless. The Ownership Structure subindex is little-used in the literature. Furthermore, Black et al. (Black et al.,
2014a; Black et al., 2014b) show that, in Brazil, and under fixed effects, this subindex has negative correlation to firm value.
Our CG subindices are composed of 25 firm attributes covering four principal aspects (Table 1 lists all CG elements).
Board Structure comprises 7 elements. The role of the board of directors, in terms of CG, is to reduce agency problems inherent in
organization and to improve decision-making (Hermalin and Weisbach, 2003; Hossain et al., 2001); and (Dahya et al., 2008)). Board
Structure comprises two dimensions: board independence and board committees. Board Independence subindex comprises 4 elements,
focusing on director independence and separation of the posts of CEO and board chairman. Audit committees, in turn, predict the
integrity and quality of financial reporting available to the market (Klein, 2002). However, in Brazil, fiscal boards frequently replace
audit committees (Black et al., 2010). The Board Committees subindex comprises 3 elements, focusing on the existence of the audit
committee and fiscal board, and whether these organs include a minority shareholder representative.
Board Procedures includes 4 elements. Board procedures are a common component of CG indices (Bhagat et al., 2008). This
dimension tracks whether the board regularly evaluates the CEO and other executives, the existence of a code of ethics and whether the
firm has a bylaw governing the board.12
Minority Shareholder Rights includes 6 elements: tag along or takeout rights (Nenova, 2003) shows that in Brazil tag along is an
important instrument for the protection of minority shareholders); minimum free float of 25% of outstanding shares (shares not held
by the controlling group); shareholders’ rights for the election of directors; preemptive rights; freezeout rights; and use of arbitration to
solve disputes with minority shareholders.13
Disclosure consists of 8 elements. Several researchers emphasize that disclosure is directly related to market value (Black et al.,
2014a; Black et al., 2014b; Black et al., 2020; Durnev and Kim, 2005; Klapper and Love, 2004). This dimension includes, among other
elements, whether the firm prepares financial statements in English, provides structured management reports, and posts financial
statements on the company’s website. It also tracks whether the auditor provides other services besides auditing, and is a Big-Four
auditing firm.14
Within each subindex, all elements have the same weight. Thus, to compute the Board Structure subindex, we sum all 7 elements,
and then divide by 7. If a firm has a value missing for a particular element, we use its average score for the non-missing values to
compute each index. To calculate BCGI (Table 3), we sum the indices and divide by 4 (the number of indices). Thus, BCGI and its
subindices run from 0 to 1.
As previously mentioned, a large body of evidence shows that firm-level CG predicts firm value and performance. In the appendix,
we show that our BCGI predicts firm value.

2.2. Econometric specification

To analyze the determinants of CG practices, we use panel data. We model the variable CGIi,t, the CG index of firm i at period t, as
→
CGI i,t = β0 + β1 *Ln(Tobin s q)i,t + βk *Covariates + εi,t , (1)
′

where
Tobin′ s q is measured as the market capitalization plus the book value of debt divided by book value of assets, and.
Covariates is a vector of variables that includes Risk: the standard deviation of the firm’s weekly share prices in the year; Age: the

11
This involves some personal judgment in the choice of the element.
12
Compared to (Black et al., 2010), the Board Procedures subindex lost two elements that are not available from the FRs: the company had more
than four face-to-face meetings during the year, and the board receives data and information before the meetings.
13
Compared to (Black et al., 2010), Minority Shareholder Rights lost one element: minority shareholders elect a director.
14
Compared to (Black et al., 2010), Disclosure lost 5 elements that became mandatory: related party transactions disclosed to shareholders; firm
discloses direct and indirect 5% holders; financial statements in IAS or US GAAP; financial statements are consolidated; and financial statements include
statement of cash flows. However, an element considering Big-four auditing was added.

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Table 2
Non-governance variables Panel A: definitions.
Tobin’s q (Market value of equity + book value of total liabilities)/(book value of total assets).

Risk Standard deviation of firm’s weekly share prices during the year.
Age Natural logarithm of the number of years since first listing.
CAPEX/PPE Capital expenditure divided by property plant and equipment.
Size Natural logarithm of total assets.
Leverage Total debt divided by total assets.
Growth Yearly growth in net revenue.
Tangibility Fixed asset divided by total assets.
Profitability Net income divided by total assets.
Margin Earnings before interest and taxes (EBIT) divided by total sales.
Liquidity number of days in year t with trade in the firm shares divided by the number of trading days during the same year
Ownership Percentage of common shares held by the largest shareholder.

Panel B: descriptive statistics

All variables with the exception of Age and Ownership were winsorized at the 2% and 98% level.

Variable Mean Median S.D. Min Max

Ln(Tobin’s q) − 0.15 − 0.17 0.68 − 2.70 2.11

Risk 3.91 3.02 2.95 0.02 9.1
Age 13.75 12.93 8.63 0.04 29.01
CAPEX/PPE 0.05 0.02 0.34 0.06 5.65
Size 15.01 15.08 1.69 9.10 19.63
Leverage 0.29 0.29 0.15 0.03 0.63
Growth 0.11 0.06 0.23 − 0.28 0.97
Tangibility 0.64 0.36 0.77 0.01 2.90
Profitability 0.03 0.04 0.09 − 0.30 0.22
Margin 0.14 0.11 0.21 − 0.39 0.93
Liquidity 0.22 0.03 0.40 0.00 1.91
Ownership 49.79 50.71 25.02 0.19 100.00

natural logarithm of the company’s listing years on the stock exchange; CAPEX/PPE: capital expenditure divided by property, plants
and equipment; Size: natural logarithm of total assets; Leverage: total debt divided by total assets; Growth: yearly net growth on rev­
enues; Tangibility: fixed assets divided by total assets; Profitability: net income divided by total assets; Margin: EBIT divided by total
sales; Liquidity: number of days in year t with trade in the firm shares divided by the number of trading days during the same year; and
Ownership: percentage of common shares held by the largest shareholder. Table 2, Panel A describes these explanatory variables.
All variables, with the exception of Age and Ownership, are winsorized at the 2% and 98% levels. Table 2, Panel B reports basic
statistics for these winsorized variables. Table 3 reports the Pearson correlations between independent variables. Overall, correlations
are small (below 0.2). The highest correlations are between Margin and Profitability (0.55), Share liquidity and Size (0.58); Margin and
Size (0.35); Profitability and Size (0.31); and Margin and Size (0.26).
In the regressions, we use explanatory variables averaged over the first two lags. For instance, riski, t = (riski, t− 1 + riski, t− 2)/2. All
estimations use firms fixed effects with standard errors clustered on firm. To control for macroeconomic shocks, we include year
dummies. In order to investigate whether firms’ specific characteristics drive the results, we run Model 1 on subsamples. We consider
two dimensions: small versus large firms, and high-requirement listings (Novo Mercado, CG Level 2 and Bovespa Mais) versus low-
requirement listings (basic listing and CG Level 1).

3. Data and sample

Our data on CG come mostly from CVM’s FR reports. We also consulted firms’ websites to observe which information firms make
available to investors (e.g., annual and quarterly financial statements and annual agenda of corporate events). All other data come
from Economatica®.
Our CG dataset is a panel covering the 2010–2014 period. Our relevant universe of public firms excludes (i) firms that went public
during the 2010–2014 period; (ii) State-controlled companies (directly or indirectly); (iii) financial institutions, (iv) companies in the
pre-operational stage; (v) firms in financial distress (insolvent or under financial restructuring); and (vi) firms reporting negative book-
value of equity. The relevant universe changes yearly due to IPOs and delistings. It increases over time in the high-requirement listings
and decreases in the low-requirement listings.
Our sample does not cover the entire relevant universe, mostly because of technical problems in accessing FRs (missing, empty or
corrupt files, and other reasons). Table 4 describes our sample and its coverage, year by year. As an illustration, in 2010, our sample
coverage by number of firms (Panel A) was 74%: our sample comprised 182 firms and the relevant universe, 247 firms. In the same
year, the coverage by market capitalization (Panel B) was 85%: the market capitalization of all firms in our sample was BRL $1953 mn,
and of all firms in the relevant universe, BRL $2310 mn. Coverage along time decreases because our sample does not include firms that
went public during the sample period. Coverage in the high-requirement listings is usually higher than in the low-requirement listings.

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 A.G. de Carvalho et al.
Table 3
Correlation matrix of non-governance variables.
Tobins’ q Risk Age CAPEX/PPE Size Leverage Growth Tangibility Profitability Margin Liquidity

Risk 0.01
Age ¡0.26 ¡0.07
CAPEX/PPE − 0.03 − 0.03 ¡0.16
Size 0.06 − 0.04 ¡0.08 0.05
Leverage 0.06 0.02 − 0.1 − 0.02 0.21
Growth 0.10 0.01 ¡0.38 0.12 0.05 0.01
Tangibility 0.03 − 0.01 − 0.01 0.09 − 0.03 0.04
6

¡0.13
Profitability 0.47 ¡0.09 ¡0.08 0.04 0.31 ¡0.17 0.08 ¡0.14
Margin 0.26 ¡0.07 ¡0.14 0.35 0.26 − 0.05 0.08 0.09 0.55
Liquidity 0.12 0.14 0.08 0.01 0.58 0.12 0.01 − 0.03 0.12 0.13
Ownership ¡0.10 − 0.04 0.11 ¡0.1 0.01 0.02 − 0.05 0.06 − 0.02 − 0.05 ¡0.22

Pearson correlations. Tobin’s q: Market value of equity plus book value of total liabilities divided by book value of total assets; Risk: the standard deviation of firm’s weekly share prices in the year; Age: the
natural logarithm of the company’s listing years on the stock exchange; CAPEX/PPE: capital expenditure divided by property, plants and equipment; Size: natural logarithm of total assets; Leverage: total
debt divided by total assets; Growth: yearly net growth on revenues; Tangibility: fixed asset divided by total assets; Profitability: net income divided by total asset; Margin EBIT / net income; Share Liquidity:
number of days with trade in the firm shares divided by the number of trading days during the year; and Ownership: percentage of common shares held by the largest shareholder. Significant coefficients at
the 5% level or less are in boldface.

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A.G. de Carvalho et al. Emerging Markets Review xxx (xxxx) xxx

Table 4
Sample description and coverage.
Full sample High-requirement listings Low-requirement listings

Panel A: coverage by number of firms

2010
Relevant universe 247 100 147
Sample 182 81 101
Coverage 74% 81% 69%
2011
Relevant universe 258 114 144
Sample 184 88 96
Coverage 71% 77% 67%
2012
Relevant universe 264 118 146
Sample 186 89 97
Coverage 70% 75% 66%
2013
Relevant universe 267 130 137
Sample 183 92 91
Coverage 69% 71% 66%
2014
Relevant universe 267 133 134
Sample 181 93 88
Coverage 68% 70% 66%

Panel B. coverage by market capitalization (BRL$ mi)

2010
Relevant universe 2310 836 1474
Sample 1953 612 1340
Percentage 85% 73% 91%
2011
All firms Listed 2043 794 1249
Sample 1744 608 1136
Percentage 85% 77% 91%
2012
All firms Listed 2298 929 1369
Sample 1967 730 1112
Percentage 86% 79% 90%
2013
All firms Listed 2122 897 1225
Sample 1813 711 1102
Percentage 85% 79% 90%
2014
All firms Listed 1833 884 948
Sample 1546 704 841
Percentage 84% 80% 89%

Relevant universe exclude firms direct or indirectly state controlled, in the financial sector, with negative book value equity, under financial distress,
in the pre-operational stage, and that went public during the 2010–2014. Numbers are year-end.

Among high-requirement listings, representation by number of firms decreases over the years, because of the growth in the relevant
universe. However, it increases by market capitalization because we exclude firms that went public and, consequently, are relatively
small. Among low-requirement listings, coverage is relatively stable both in number of firms and in market capitalization.

4. Evolution of corporate governance

During 2010–2014 in Brazil, the overall picture is of significant improvement in all aspects of CG practices. Fig. 1 provides a
graphical depiction of the evolution of CG practices over our sample period. Table 5, Panel A reports yearly changes. The overall
picture is that CG improved in all of its aspects. The overall index, BCGI, rose from 0.49 to 0.62. Board structure increased from 0.42 to
0.51; Board Procedures, from 0.38 to 0.59; Shareholder Rights, from 0.49 to 0.59; and Disclosure, from 0.68 to 0.78. All of these
changes are statistically significant at the 1% level.
There was a strong improvement of all aspects of CG from 2010 to 2011, immediately after regulatory changes. Thereafter, the pace
of improvement differs across the CG indices. Yearly differences in BCGI are always statistically significant, with the exception of
2013–2014. The increase in Board Structure was relatively uniform and statistically significant from 2010 to 2011 and 2011 to 2012.
The increase in Board Independence and Board Committees were also mostly uniform, but annual changes are statistically significant
only from 2010 to 2011. Board Procedure increased uniformly over the period, and all yearly changes are statistically significant with
the exception of 2013–2014. Gains in Shareholder Rights and Disclosure were concentrated from 2010–2011 and 2012 to 2013, when
changes are statistically significant.
The evolution of CG varied across high- and low-requirements listings. In the high-requirement listings (Table 5, Panel B), the

7
A.G. de Carvalho et al. Emerging Markets Review xxx (xxxx) xxx

Evolution of Governance: 2010-2014

0.60 0.62 BCGI

0.57
0.54
0.49 0.50 0.51 Board Structure
0.48
0.46
0.42
0.57 0.59
0.46 0.53 Board Procedures
0.38

0.53 0.57 0.59

0.49 0.52 Minority Shareholder Rights

0.68 0.73 0.74 0.78 0.78 Disclosure

2010 2011 2012 2013 2014

Fig. 1. Evolution of Governance: 2010–2014.

Table 5
Evolution of corporate governance indices.
2010 Diff 2010–11 2011 Diff 2011–12 2012 Diff 2012–13 2013 Diff 2013–14 2014 Diff 2010–14

Panel A: full Sample

BCGI 0.49 0.05*** 0.54 0.03* 0.57 0.03* 0.60 0.01 0.62 0.12***
Board structure 0.42 0.04** 0.46 0.02* 0.48 0.02 0.50 0.01 0.51 0.09***
Board independence 0.41 0.03* 0.44 0.03 0.47 0.01 0.47 0.01 0.48 0.07***
Board committees 0.43 0.05** 0.48 0.02 0.50 0.02 0.52 0.01 0.53 0.11***
Board procedures 0.38 0.08*** 0.46 0.07** 0.53 0.04* 0.57 0.02 0.59 0.21***
Shareholder rights 0.49 0.03* 0.52 0.01 0.53 0.04* 0.57 0.02 0.59 0.10***
Disclosure 0.68 0.05* 0.73 0.01 0.74 0.04* 0.78 0.00 0.78 0.10***

Panel B: high-requirement Listing subsample

BCGI 0.65 0.06** 0.71 0.04* 0.75 0.03 0.78 0.02 0.80 0.14***
Board structure 0.53 0.07*** 0.60 0.03 0.63 0.02 0.64 0.02 0.66 0.13***
Board independence 0.62 0.04* 0.67 0.03 0.69 0.02 0.71 0.01 0.72 0.10***
Board committees 0.44 0.09*** 0.53 0.03* 0.56 0.01 0.57 0.02 0.60 0.16***
Board procedures 0.49 0.08** 0.58 0.10*** 0.68 0.04* 0.73 0.02 0.74 0.25***
Shareholder rights 0.71 0.05** 0.76 0.01 0.77 0.04* 0.81 0.03* 0.84 0.13***
Disclosure 0.88 0.03* 0.90 0.01 0.92 0.03 0.94 0.00 0.94 0.07**

Panel C: low-requirement listings subsample

BCGI 0.38 0.04* 0.42 0.02 0.45 0.03 0.48 0.01 0.49 0.11***
Board structure 0.34 0.02 0.37 0.02 0.39 0.01 0.40 0.01 0.41 0.06*
Board independence 0.27 0.02 0.28 0.03 0.31 0.00 0.31 0.01 0.32 0.05*
Board committees 0.42 0.03 0.45 0.01 0.46 0.03 0.49 0.01 0.50 0.08**
Board procedures 0.31 0.07** 0.38 0.05** 0.43 0.03 0.46 0.03 0.48 0.18***
Shareholder rights 0.33 0.02 0.35 0.01 0.36 0.04* 0.40 0.02 0.42 0.09**
Disclosure 0.54 0.07** 0.61 0.00 0.61 0.05* 0.66 0.00 0.66 0.12***

Yearly averages and differences for corporate governance (CG) index. BCGI, the general country CG index, computed as the average of four sub­
indices: Board Structure, Board Procedures, Shareholder Rights and Disclosure. High-requirement listings include Novo Mercado, CG Level 2 and
Bovespa-Mais, and Low-requirement listings, CG Level 1 and basic listing. *, ** and *** indicate that difference are statistically significant at the 10%,
5% and 1% levels (boldface).
*, ** and *** indicate significant differences at the 10%, 5% and 1% levels (bold).

improvement in most indices over the whole period was strong and statistically significant at the 10% level or better. For instance, the
average of BCGI went from 0.65 to 0.80. The only aspect with modest increase was Disclosure (from 0.88 to 0.94). However, Disclosure
was already close to its maximum, leaving little room for improvement. For most indices, improvement was strong and statistically
significant from 2010 to 2011, but modest and usually not statistically significant thereafter. Board Procedures is exception: its
improvement was almost uniform and statistically significant over most years.
In the low-requirement listings (Table 5, Panel C), CG practices also improved between 2010 and 2014. Over this period, changes in
all indices were statistically significant at the 10% level or better. However, improvement of these listings was weaker than in the high-
requirement listings, even though they started from a lower value. For instance, BCGI went from 0.38 to 0.49. The only subindices for
which there was strong improvement in the low-requirement listings were Board Procedures (from 0.31 to 0.48) and Disclosure (from

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A.G. de Carvalho et al. Emerging Markets Review xxx (xxxx) xxx

Table 6
What predicts corporate governance (full sample).
Regression (1) (2) (3) (4) (5)

Overall (BCGI) Board Structure Board Procedure Shareholder Rights Disclosure

Ln(Tobin’q) 0.020 − 0.001 − 0.008 0.022 0.026

(1.51) (− 0.06) (− 0.30) (1.07) (1.54)
Risk 0.001 0.000 − 0.001 0.005 0.002
(0.57) (0.06) (− 0.36) (1.10) (0.85)
Age − 0.009 − 0.030 0.055 0.018 − 0.076
(− 0.25) (− 0.35) (0.76) (0.32) (− 1.61)
Capex-PPE − 0.002 0.011 0.025 ¡0.019** ¡0.021*
(− 0.49) (0.97) (1.60) (¡2.09) (¡1.75)
Size 0.011 0.048 0.026 − 0.019 − 0.010
(0.57) (1.44) (0.54) (− 0.59) (− 0.37)
Leverage 0.044 − 0.022 − 0.122 0.204* 0.112
(0.55) (− 0.14) (− 0.98) (1.86) (1.51)
Growth − 0.016 0.014 − 0.021 0.006 ¡0.044**
(− 1.02) (0.46) (− 0.62) (0.30) (¡2.27)
Tangibility 0.019** 0.009 0.047*** − 0.015 0.035**
(2.06) (0.42) (2.69) (− 0.68) (2.23)
Profitability 0.026 − 0.237 0.202 0.068 0.114
(0.34) (− 1.29) (1.16) (0.49) (0.95)
Margin 0.026 0.099** − 0.077 0.051 0.007
(1.11) (2.17) (− 1.33) (1.39) (0.15)
Liquidity 0.025** 0.023 0.032 0.007 0.045**
(2.22) (1.23) (1.64) (0.27) (2.59)
Ownership − 0.000 − 0.002 − 0.000 − 0.000 0.001*
(− 0.13) (− 1.24) (− 0.34) (− 0.27) (1.87)
Constant yes yes yes yes yes
Year dummies yes yes yes yes yes
R-square 0.34 0.17 0.38 0.19 0.14
Observations 665 676 676 676 676
# of firms 184 184 184 184 184

Analysis of the determinants of corporate governance indices. Coefficients come from firm-fixed effects regressions. BCGI is the average of the 4 other
indices. The independent variables are: Tobin’s q: market value of equity plus book value of total liabilities divided by book value of total assets; Risk:
the standard deviation of firm’s weekly share prices in the year; Age: the natural logarithm of the company’s listing years on the stock exchange;
CAPEX/PPE: capital expenditure divided by property, plants and equipment; Size: natural logarithm of total assets; Leverage: total debt divided by
total assets; Growth: yearly net growth on revenues; Tangibility: fixed asset divided by total assets; Profitability: net income divided by total asset;
Margin: EBIT divided by sales; Share Liquidity: number of days with trade in the firm shares divided by the number of trading days during the year; and
Ownership: percentage of common shares held by the largest shareholder. Independent variables are averaged over the first two lags [xt = (xt-1 + xt-2)/
2]. Standard errors are clustered on firm. *, ** and *** indicate significance at the 10%, 5% and 1% levels. Coefficients statistically significant at the
10% level or better are in Boldface.

0.54 to 0.66). The yearly improvement of BCGI was relatively uniform, but usually not statistically significant. The yearly improve­
ment in Board Procedures was strong between 2010 and 2012 when yearly changes were statistically significant. Disclosure improved
strongly from 2010 to 2011 and from 2012 to 2013. The yearly changes in the remaining aspects of CG were modest, and usually not
statistically significant.

5. Empirical results

This section reports our results on the determinants of BCGI and its subindices. We base our analysis on estimations in Model 1. All
coefficients come from panel data analysis under firm fixed effects. The standard errors are clustered at the firm-level. As mentioned
above, independent variables are averaged over the first two lags.
Table 6 reports our main results. In Regression 1, the dependent variable is the country overall CG index (BCGI). Only variables
Tangibility and Liquidity present positive and statistically significant coefficients, both at the 5% level. The effect of Tangibility comes
mostly from its effect on Board Procedure (Regression 3), its coefficient is statistically significant at the 1% level; and Disclosure
(Regression 5), the coefficient is statistically significant at the 5% level. The effect of Tangibility on Board Structure is positive but quite
insignificant (t = 0.42) and on Shareholder Rights, it is even negative (t = − 0.68).
The effect of Liquidity on BCGI comes mostly from Disclosure (Regression 5). Its coefficient is positive and statistically significant at
the 5% level. Its effect on Board Procedure is almost statistically significant (t = 1.64 in Regression 3). However, its effects on Board
Structure (Regression 2) and Shareholder Rights (Regression 4), although positive, are modest.
Other variables are either insignificant across all CG subindices, or provide no clear story. For instance, Capex/PPE has a negative
and statistically significant effect on Shareholder Rights and Disclosure (at the 5% and 10% levels, respectively), but positive on Board
Structure and Board Procedure (for the latter it is almost statistically significant: t = 1.60 in Regression 3).
We also perform the same analysis on subsamples to investigate whether our results come from specific subsamples, or whether

9
A.G. de Carvalho et al. Emerging Markets Review xxx (xxxx) xxx

Table 7
What predicts corporate governance (subsample of largest firms).
Regression (1) (2) (3) (4) (5)

Dependent variable Overall (BCGI) Board Structure Board Procedure Shareholder Rights Disclosure

Ln(Tobin’q) 0.048 0.011 0.022 0.075* 0.027

(1.56) (0.26) (0.56) (1.76) (0.75)
Risk 0.001 − 0.002 0.002 0.009** − 0.001
(0.32) (− 0.30) (0.26) (2.18) (− 0.38)
Age 0.018 0.019 − 0.079 0.146* − 0.028
(0.35) (0.20) (− 0.62) (1.84) (− 0.45)
Capex-PPE 0.003 0.020 0.028 ¡0.018** − 0.013
(0.50) (1.61) (1.45) (¡2.32) (− 1.57)
Size 0.011 0.066* 0.051 − 0.053 − 0.010
(0.41) (1.73) (0.71) (− 1.27) (− 0.26)
Leverage 0.048 − 0.087 − 0.112 0.141 0.125
(0.49) (− 0.50) (− 0.55) (1.06) (1.15)
Growth − 0.025 0.016 − 0.072 0.019 − 0.043
(− 1.32) (0.37) (− 1.50) (0.67) (− 1.46)
Tangibility 0.037*** 0.047* 0.070*** − 0.026 0.058**
(2.65) (1.80) (2.95) (− 0.75) (2.47)
Profitability 0.292 0.296 0.263 0.328 − 0.020
(1.21) (0.71) (0.61) (0.90) (− 0.05)
Margin − 0.067 0.078 − 0.264 − 0.004 − 0.047
(− 0.81) (0.51) (− 1.58) (− 0.02) (− 0.38)
Liquidity 0.024 − 0.005 0.044 − 0.020 0.074**
(1.10) (− 0.18) (1.17) (− 0.62) (2.05)
Ownership 0.001 0.000 0.000 0.001 0.002
(1.49) (0.11) (0.03) (0.94) (1.62)
constant yes yes yes yes yes
Year dummies yes yes yes yes yes
R-square 0.36 0.19 0.48 0.16 0.11
Observations 329 338 338 338 338
# of firms 97 97 97 97 97

Subsample of firms above the median value of total assets. Analysis of the determinants of corporate governance indices. Coefficients come from firm-
fixed effects regressions. BCGI is the average of the 4 other indices. The independent variables are: Tobin’s q: market value of equity plus book value of
total liabilities divided by book value of total assets; Risk: the standard deviation of firm’s weekly share prices in the year; Age: the natural logarithm of
the company’s listing years on the stock exchange; CAPEX/PPE: capital expenditure divided by property, plants and equipment; Size: natural log­
arithm of total assets; Leverage: total debt divided by total assets; Growth: yearly net growth on revenues; Tangibility: fixed asset divided by total assets;
Profitability: net income divided by total asset; Margin: EBIT divided by sales; Share Liquidity: number of days with trade in the firm shares divided by
the number of trading days during the year; and Ownership: percentage of common shares held by the largest shareholder. Independent variables are
averaged over the first two lags [xt = (xt-1 + xt-2)/2]. Standard errors are clustered on firm. *, ** and *** indicate significance at the 10%, 5% and 1%
levels. Coefficients statistically significant at the 10% level or better are in Boldface.

some variables may matter for a specific subsample, but not for others. We choose three dimensions: size (large versus small), business
(manufacturing versus non-manufacturing) and listings (high- versus low-requirement listings15).16 Not surprisingly, as in this liter­
ature, results are usually not consistent either across or within subsamples. For large firms (Table 7), Tangibility is the only variable
with consistent effect on almost all CG indices (the exception is Shareholder Rights). For small firms (Table 8), Margin, Liquidity, and
CAPEX/PPE present coefficients with consistent sign that are statistically significant for at least 3 of the 5 CG indices. However,
contrary to the results for the full sample reported in Table 6, Tangibility presents negative and statistically significant coefficients for
BCGI and Shareholder Rights.
For manufacturing firms (Table 9), none of the variables presents consistent statistically significant results across CG indices. For
non-manufacturing firms (Table 10), tangibility is the only variable with consistent effect on almost all CG indices (the exception is
Shareholder Rights).
For firms in high-requirement listings (Table 11), only Tangibility and Profitability present coefficients with consistent sign that are
statistically significant for at least 3 of the 5 CG indices. Finally, in the sample of low-requirement listings (Table 12), none of the
variables presents consistent statistically significant results across CG indices.
A broad concern for studies that use CG to predict firm market value is whether the usually observed correlation between CG and
Tobin’s q (or another firm outcome) reflects causality, omitted variable bias, or reverse causation. The weak ability of an array of
observed covariates to consistently predict CG suggests that unobserved covariates may also only weakly predict CG. If so, omitted

15
High-requirement listings include Novo Mercado, Corporate Governance Level 2 and Bovespa Mais, and low-requirement listings, Corporate
Governance Level 1 and Regular.
16
We do not consider the subsample of affiliated to business groups, because they are little frequent in Brazil and many of them are state owned or
in the financial sector (see (Aldrigui and Postali, 2010)).

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A.G. de Carvalho et al. Emerging Markets Review xxx (xxxx) xxx

Table 8
What predicts corporate governance (subsample of smallest firms).
Regression (1) (2) (3) (4) (5)

Overall (BCGI) Board Structure Board Procedure Shareholder Rights Disclosure

Ln(Tobin’q) − 0.006 − 0.026 − 0.036 − 0.011 0.003

(− 0.33) (− 0.85) (− 0.91) (− 0.39) (0.14)
Risk − 0.003 − 0.004 − 0.003 − 0.002 − 0.001
(− 0.80) (− 0.57) (− 0.85) (− 0.23) (− 0.27)
Age − 0.040 − 0.070 0.144 − 0.095 − 0.103
(− 0.56) (− 0.38) (1.08) (− 1.11) (− 1.43)
Capex-PPE ¡0.436** − 0.155 − 0.109 ¡1.007*** ¡0.363*
(¡2.62) (− 0.76) (− 0.29) (¡7.48) (¡1.78)
Size − 0.061 0.003 − 0.080 − 0.108 − 0.045
(− 1.32) (0.03) (− 0.87) (− 1.48) (− 0.93)
Leverage 0.023 − 0.070 0.000 0.200 0.033
(0.16) (− 0.26) (0.00) (1.21) (0.29)
Growth − 0.018 − 0.007 0.004 − 0.018 ¡0.047**
(− 0.77) (− 0.15) (0.08) (− 0.58) (¡2.06)
Tangibility ¡0.017* − 0.024 0.000 ¡0.041** 0.005
(¡1.71) (− 0.82) (0.01) (¡2.42) (0.26)
Profitability − 0.064 − 0.359 0.189 0.002 0.069
(− 0.64) (− 1.60) (1.21) (0.01) (0.42)
Margin 0.061*** 0.105** 0.011 0.073** 0.039
(2.69) (2.05) (0.19) (2.61) (0.85)
Liquidity 0.142** 0.194 0.070 0.251*** 0.044
(2.13) (1.01) (0.39) (2.90) (0.42)
Ownership − 0.000 − 0.003 0.001 − 0.001 0.000
(− 0.50) (− 1.10) (0.54) (− 0.60) (0.45)
constant Yes yes yes yes yes
Year dummies yes yes yes yes yes
R-square 0.45 0.18 0.41 0.28 0.31
Observations 273 275 275 275 275
# of firms 87 87 87 87 87

Subsample of firms below the median value of total assets. Analysis of the determinants of corporate governance indices. Coefficients come from firm-
fixed effects regressions. BCGI is the average of the 4 other indices. The independent variables are: Tobin’s q: market value of equity plus book value of
total liabilities divided by book value of total assets; Risk: the standard deviation of firm’s weekly share prices in the year; Age: the natural logarithm of
the company’s listing years on the stock exchange; CAPEX/PPE: capital expenditure divided by property, plants and equipment; Size: natural log­
arithm of total assets; Leverage: total debt divided by total assets; Growth: yearly net growth on revenues; Tangibility: fixed asset divided by total assets;
Profitability: net income divided by total asset; Margin: EBIT divided by sales; Share Liquidity: number of days with trade in the firm shares divided by
the number of trading days during the year; and Ownership: percentage of common shares held by the largest shareholder. Independent variables are
averaged over the first two lags [xt = (xt-1 + xt-2)/2]. Standard errors are clustered on firm. *, ** and *** indicate significance at the 10%, 5% and 1%
levels. Coefficients statistically significant at the 10% level or better are in Boldface.

variable bias may be small, mainly if one controls for the few variables with effects on CG (Tangibility, Profitability, Liquidity and
CAPEX/PPE). Finally, the coefficient on Tobin’s q is not statistically significant and its sign flips across subindices and subsamples. It is
positive and significant in Regression 4 of Table 7, and negative and significant in Regression 2 of Table 10. Sometimes it bears
statistical significance, as in Regression 1 of Tables 6 and 7. This lack of significance of Tobins’ q is important in itself because it
suggests that reverse causation is not a strong concern. These two results together suggest that the commonly found correlation be­
tween CG and Tobin’s q is more likely to be causal. Our results are consistent with those of Black et al. (Black et al., 2006), Balasu­
bramanian, Black and Khanna (Balasubramanian et al., 2010), and Ararat, Black and Yurtoglu (Ararat et al., 2017).

6. Conclusion

We study the evolution of CG practices in Brazil and the determinants of firms’ choice of CG practices. In 2009 and 2010, Brazil
issued new regulations on disclosure, requiring firms to report CG practices, adopt international generally acceptable accounting
principles (IRFS), and report consolidated financial statements. The systematic disclosure of CG practices allows the tracking of CG
practices over time for almost all public firms. We build subindices covering four aspects of CG: Board Structure, Board Procedures,
Minority Shareholder Rights, and Disclosure. An overall CG index (BCGI) is computed as the average of the four subindices.
There was improvement in all aspects of CG between 2010 and 2014. Board Procedures improved the most. Improvement in CG was
stronger among firms in the high- than in the low-requirement listings.
Increased tangibility and shares’ liquidity are the factors with highest predictive power on BCGI. The effect of tangibility comes
mostly through its effect on Board Procedures and Disclosure subindices. The effect of liquidity comes mostly through Disclosure.
Other firms characteristics are either insignificant across all CG indices, or provide no clear story.
Finally, we find no predictive power for Tobins’ q on CG. This is an important result in itself, because it suggests that reverse
causation, in regressions in which Tobins’ q is the dependent variable and CG an explanatory one, is not a strong concern.

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A.G. de Carvalho et al. Emerging Markets Review xxx (xxxx) xxx

Table 9
What predicts corporate governance (subsample of manufacturing firms).
Regression (1) (2) (3) (4) (5)

Overall (BCGI) Board Structure Board Procedure Shareholder Rights Disclosure

Ln(Tobin’q) − 0.000 0.005 − 0.045 − 0.003 0.026

(− 0.02) (0.10) (− 0.88) (− 0.13) (0.84)
Risk − 0.001 ¡0.012** − 0.001 0.006 0.002
(− 0.29) (¡2.26) (− 0.40) (0.96) (0.85)
Age − 0.037 − 0.210 0.183 0.075 ¡0.207**
(− 0.53) (− 1.22) (1.64) (0.63) (¡2.42)
Capex-PPE − 0.172 − 1.692 2.803*** 0.049 − 1.063
(− 0.21) (− 0.69) (2.70) (0.04) (− 0.58)
Size − 0.065* − 0.048 − 0.017 − 0.109 − 0.049
(− 1.71) (− 0.55) (− 0.23) (− 1.56) (− 1.10)
Leverage − 0.015 − 0.547 − 0.042 0.302 0.167
(− 0.08) (− 1.38) (− 0.22) (1.09) (1.20)
Growth − 0.057 − 0.041 − 0.004 ¡0.110** − 0.043
(− 1.54) (− 0.52) (− 0.05) (¡2.29) (− 0.84)
Tangibility ¡0.045** − 0.057 ¡0.082* − 0.062 0.051
(¡2.12) (− 1.04) (¡1.88) (− 1.23) (1.44)
Profitability − 0.073 − 0.579* 0.190 0.166 0.093
(− 0.53) (− 1.97) (1.06) (0.66) (0.47)
Margin 0.132 0.258*** 0.031 0.003 0.070
(1.21) (3.21) (0.35) (0.04) (0.54)
Liquidity 0.018 − 0.033 0.085** − 0.011 0.030*
(1.29) (− 0.71) (2.50) (− 0.29) (1.97)
Ownership − 0.001 − 0.003 − 0.000 − 0.000 0.001
(− 0.68) (− 1.63) (− 0.21) (− 0.17) (1.19)
constant Yes yes yes yes yes
Year dummies yes yes yes yes yes
R-square 0.42 0.18 0.45 0.22 0.23
Observations 213 227 227 227 227
# of firms 57 57 57 57 57

Analysis of the determinants of corporate governance indices. Coefficients come from firm-fixed effects regressions. BCGI is the average of the 4 other
indices. The independent variables are: Tobin’s q: market value of equity plus book value of total liabilities divided by book value of total assets; Risk:
the standard deviation of firm’s weekly share prices in the year; Age: the natural logarithm of the company’s listing years on the stock exchange;
CAPEX/PPE: capital expenditure divided by property, plants and equipment; Size: natural logarithm of total assets; Leverage: total debt divided by
total assets; Growth: yearly net growth on revenues; Tangibility: fixed asset divided by total assets; Profitability: net income divided by total asset;
Margin: EBIT divided by sales; Share Liquidity: number of days with trade in the firm shares divided by the number of trading days during the year; and
Ownership: percentage of common shares held by the largest shareholder. Independent variables are averaged over the first two lags [xt = (xt-1 + xt-2)/
2]. Standard errors are clustered on firm. *, ** and *** indicate significance at the 10%, 5% and 1% levels. Coefficients statistically significant at the
10% level or better are in Boldface.

Appendix A

This appendix addresses the quality of our CG indices as predictors of firm value. As mentioned in Section 2.1, our indices are
similar but not identical to those used by Black et al. (Black et al., 2010; Black et al., 2014a; Black et al., 2014b). Our BCGI lacks
subindices for Ownership Structure and Related Party Transactions. Furthermore, our Disclosure subindex changed substantially:
because of the improvement in disclosure rules, many elements became meaningless (universal). Thus, it is opportune to check the
power of our current indices to predict firm value. We do so using the usual model

Ln(Tobin s q)i,t = β0 + β1 *CGI i,t + βk *Controls + εi,t , (2)

′

where.
CGIi,t is the CG index of firm i in period t and Controls is a vector composed of the same control variables as in Model 1 (described in
Table 2). All variables are contemporaneous (we do not average the covariates over the two first lags, as we did for the estimation of
Model 1).
Table A1 reports our estimations for Model 2. In Regression 1, our overall CG index, BCGI, has coefficient 0.423 that is statistically
significant at the 5% level. This result is in line with that of Black et al. (Black et al., 2012). Among the subindices, the only one with
predictive power on Tobin’s q is Shareholder Rights (statistically significant at the 5% level in Regression 4). The remaining subindices
have no predictive power on Tobin’s q. This is distinct from the findings of Black et al. (2020) for which Disclosure is the only subindex
with consistent predictive power. The loss of predictive power of Disclosure may result from the fact that many elements of disclosure
lost meaning after IRFS and consolidated financial statements became mandatory in 2010.

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Table 10
What predicts corporate governance (subsample of non-manufacturing firms).
Regression (1) (2) (3) (4) (5)

Overall (BCGI) Board Structure Board Procedure Shareholder Rights Disclosure

Ln(Tobin’q) 0.022 − 0.014 − 0.026 0.031 0.025

(1.40) (− 0.44) (− 0.73) (1.22) (0.97)
Risk − 0.000 0.007 − 0.002 0.000 − 0.003
(− 0.00) (0.95) (− 0.38) (0.02) (− 0.60)
Age 0.001 0.027 − 0.050 0.001 0.034
(0.03) (0.28) (− 0.41) (0.01) (0.47)
Capex-PPE 0.001 0.012 0.030 ¡0.023** − 0.016
(0.28) (1.07) (1.41) (¡2.27) (− 1.32)
Size 0.004 0.029 0.027 − 0.025 − 0.028
(0.18) (0.72) (0.44) (− 0.69) (− 0.75)
Leverage − 0.007 0.099 − 0.205 0.114 0.030
(− 0.08) (0.72) (− 1.20) (1.26) (0.35)
Growth − 0.014 0.025 − 0.040 0.021 − 0.029
(− 0.73) (0.65) (− 0.86) (0.88) (− 1.13)
Tangibility 0.035** 0.049* 0.069*** − 0.034 0.049**
(2.37) (1.82) (2.83) (− 1.38) (2.25)
Profitability 0.021 − 0.150 − 0.092 0.244 0.177
(0.14) (− 0.52) (− 0.31) (1.28) (0.89)
Margin 0.012 0.067 − 0.062 0.023 − 0.033
(0.47) (1.21) (− 0.83) (0.52) (− 0.82)
Liquidity 0.062 0.094* 0.009 0.045 0.085
(1.47) (1.90) (0.11) (1.13) (1.00)
Ownership 0.001* 0.000 0.000 − 0.001 0.003**
(1.82) (0.27) (0.20) (− 0.49) (2.50)
constant Yes yes yes yes yes
Year dummies yes yes yes yes yes
R-square 0.57 0.31 0.44 0.23 0.21
Observations 336 354 354 354 354
# of firms 91 91 91 91 91

Analysis of the determinants of corporate governance indices. Coefficients come from firm-fixed effects regressions. BCGI is the average of the 4 other
indices. The independent variables are: Tobin’s q: market value of equity plus book value of total liabilities divided by book value of total assets; Risk:
the standard deviation of firm’s weekly share prices in the year; Age: the natural logarithm of the company’s listing years on the stock exchange;
CAPEX/PPE: capital expenditure divided by property, plants and equipment; Size: natural logarithm of total assets; Leverage: total debt divided by
total assets; Growth: yearly net growth on revenues; Tangibility: fixed asset divided by total assets; Profitability: net income divided by total asset;
Margin: EBIT divided by sales; Share Liquidity: number of days with trade in the firm shares divided by the number of trading days during the year; and
Ownership: percentage of common shares held by the largest shareholder. Independent variables are averaged over the first two lags [xt = (xt-1 + xt-2)/
2]. Standard errors are clustered on firm. *, ** and *** indicate significance at the 10%, 5% and 1% levels. Coefficients statistically significant at the
10% level or better are in Boldface.

Table A1
Predictive power of corporate governance on Tobins’ q.

Regression (1) (2) (3) (4) (5)

Overall (BCGI) Board Structure Board Procedure Shareholder Rights Disclosure

Governance Index 0.423** 0.039 0.039 0.238** 0.056

(2.09) (0.44) (0.44) (2.06) (0.54)
Risk 0.002 0.004 0.005 0.003 0.002
(0.13) (1.04) (0.22) (0.74) (0.23)
Age − 0.058 − 0.072 − 0.073 − 0.068 − 0.072
(− 1.20) (− 1.47) (− 1.49) (− 1.42) (− 1.45)
Capex-PPE 0.006 0.005 0.005 0.005 0.006
(0.47) (0.37) (0.40) (0.42) (0.47)
Size ¡0.150*** ¡0.146*** ¡0.145*** ¡0.143*** ¡0.144***
(¡3.31) (¡3.17) (¡3.15) (¡3.09) (¡3.10)
Leverage ¡0.435* ¡0.477** ¡0.476** ¡0.509** ¡0.480**
(¡1.94) (¡2.31) (¡2.29) (¡2.52) (¡2.34)
Growth 0.001 − 0.014 − 0.013 − 0.015 − 0.011
(0.01) (− 0.24) (− 0.22) (− 0.26) (− 0.19)
Tangibility ¡0.063*** ¡0.058*** ¡0.059*** ¡0.057*** ¡0.060***
(¡3.32) (¡3.17) (¡3.00) (¡3.05) (¡3.11)
Profitability 0.313 0.364 0.353 0.329 0.349
(1.08) (1.26) (1.19) (1.12) (1.20)
(continued on next page)

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A.G. de Carvalho et al. Emerging Markets Review xxx (xxxx) xxx

Table 11
What predicts corporate governance (high-requirement listings).
Regression (1) (2) (3) (4) (5)

Overall (BCGI) Board Structure Board Procedure Shareholder Rights Disclosure

Ln(Tobin’q) 0.020 0.013 − 0.011 0.001 0.010

(1.00) (0.31) (− 0.29) (0.03) (0.42)
Risk 0.001 0.006 − 0.005 0.002 0.002
(0.40) (1.31) (− 1.07) (0.43) (0.81)
Age − 0.046 0.100 − 0.135 − 0.042 − 0.020
(− 0.88) (0.96) (− 1.40) (− 0.52) (− 0.26)
Capex-PPE − 0.001 0.022* 0.008 ¡0.023** − 0.009
(− 0.18) (1.99) (0.44) (¡2.56) (− 1.11)
Size 0.025 0.049 0.007 − 0.009 0.014
(0.93) (1.01) (0.11) (− 0.21) (0.37)
Leverage 0.016 0.050 ¡0.283* 0.172 0.104
(0.18) (0.28) (¡1.71) (1.46) (1.11)
Growth − 0.006 − 0.006 − 0.014 0.061* − 0.045
(− 0.29) (− 0.12) (− 0.36) (1.99) (− 1.66)
Tangibility 0.028** 0.045 0.055** − 0.041 0.045**
(2.23) (1.57) (2.32) (− 1.54) (2.18)
Profitability 0.341** − 0.399 0.886*** 0.614** 0.357*
(2.23) (− 0.82) (3.17) (2.08) (1.71)
Margin − 0.042 0.123 ¡0.259* 0.001 − 0.083
(− 0.51) (0.83) (¡1.91) (0.01) (− 0.76)
Liquidity − 0.016 0.043 − 0.070 − 0.029 − 0.042
(− 0.58) (0.68) (− 1.10) (− 0.79) (− 1.28)
Ownership 0.001 0.002 − 0.002 0.000 0.001
(1.24) (1.40) (− 1.40) (0.18) (1.57)
constant yes yes yes yes yes
Year dummies yes yes yes yes yes
R-square 0.47 0.23 0.49 0.29 0.10
Observations 317 317 317 317 317
# of firms 88 88 88 88 88

Subsample of firms listed at Novo Mercado, CG Level 2 and Bovespa-Mais. Analysis of the determinants of corporate governance indices. Coefficients
come from firm-fixed effects regressions. BCGI is the average of the 4 other indices. The independent variables are: Tobin’s q: market value of equity
plus book value of total liabilities divided by book value of total assets; Risk: the standard deviation of firm’s weekly share prices in the year; Age: the
natural logarithm of the company’s listing years on the stock exchange; CAPEX/PPE: capital expenditure divided by property, plants and equipment;
Size: natural logarithm of total assets; Leverage: total debt divided by total assets; Growth: yearly net growth on revenues; Tangibility: fixed asset
divided by total assets; Profitability: net income divided by total asset; Margin: EBIT divided by sales; Share Liquidity: number of days with trade in the
firm shares divided by the number of trading days during the year; and Ownership: percentage of common shares held by the largest shareholder.
Independent variables are averaged over the first two lags [xt = (xt-1 + xt-2)/2]. Standard errors are clustered on firm. *, ** and *** indicate sig­
nificance at the 10%, 5% and 1% levels. Coefficients statistically significant at the 10% level or better are in Boldface.

Table A1 (continued )
Regression (1) (2) (3) (4) (5)

Overall (BCGI) Board Structure Board Procedure Shareholder Rights Disclosure

Margin − 0.102 − 0.089 − 0.085 − 0.094 − 0.087

(− 1.07) (− 1.17) (− 1.13) (− 1.23) (− 1.15)
Liquidity 0.130*** 0.141*** 0.142*** 0.139*** 0.139***
(3.77) (3.89) (3.91) (4.30) (3.78)
Ownership ¡0.005** ¡0.004** ¡0.004** ¡0.004** ¡0.004**
(¡2.42) (¡2.09) (¡2.10) (¡2.07) (¡2.16)
constant yes yes yes yes yes
Year dummies yes yes yes yes yes
R-square 0.37 0.22 0.29 0.18 0.27
Observations 665 676 676 676 676
# of firms 184 184 184 184 184
Estimation of the model Ln(Tobin′ s q)i, t = β0 + β1 * CGIi, t + βk * Controls + εi, t,where CGIi,t is the CG index of firm i in period t and Controls is a vector of
covariates including, Risk: the standard deviation of firm’s weekly share prices in the year; Age: the natural logarithm of the company’s listing years on
the stock exchange; CAPEX/PPE: capital expenditure divided by property, plants and equipment; Size: natural logarithm of total assets; Leverage: total
debt divided by total assets; Growth: yearly net growth on revenues; Tangibility: fixed asset divided by total assets; Profitability: net income divided by
total asset; Margin: EBIT divided by sales; Share Liquidity: number of days with trade in the firm shares divided by the number of trading days during
the year; and Ownership: percentage of common shares held by the largest shareholder. Coefficients come from panel data with firm fixed effects.
Standard errors are clustered on firm. *, ** and *** indicate significant coefficients at the 10%, 5% and 1% levels (in boldface).

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A.G. de Carvalho et al. Emerging Markets Review xxx (xxxx) xxx

Table 12
What predicts corporate governance (low-requirement listings).
Regression (1) (2) (3) (4) (5)

Overall (BCGI) Board Structure Board Procedure Shareholder Rights Disclosure

Ln(Tobin’q) − 0.001 ¡0.058* 0.012 0.018 0.006

(− 0.03) (¡1.80) (0.36) (0.87) (0.20)
Risk 0.001 − 0.005 0.003 0.008 0.001
(0.33) (− 1.04) (0.75) (0.92) (0.41)
Age − 0.036 − 0.253 0.102 0.051 − 0.102
(− 0.42) (− 1.21) (0.67) (0.56) (− 1.18)
Capex-PPE − 0.034 − 0.055 0.282*** − 0.092 ¡0.242***
(− 1.10) (− 1.01) (4.84) (− 1.45) (¡4.60)
Size − 0.047 0.001 0.077 ¡0.119** ¡0.072*
(− 1.32) (0.02) (0.79) (¡2.41) (¡1.82)
Leverage 0.046 − 0.271 0.169 0.139 0.104
(0.44) (− 1.18) (1.00) (1.03) (0.94)
Growth − 0.029 0.010 − 0.022 − 0.031 − 0.045
(− 0.95) (0.23) (− 0.32) (− 1.11) (− 1.33)
Tangibility − 0.015 − 0.042 − 0.009 0.012 − 0.006
(− 0.86) (− 1.05) (− 0.22) (0.63) (− 0.16)
Profitability − 0.067 − 0.210 0.015 − 0.063 0.072
(− 0.76) (− 1.21) (0.07) (− 0.51) (0.37)
Margin 0.052** 0.110** − 0.016 0.032 0.041
(2.05) (2.06) (− 0.27) (0.81) (0.85)
Liquidity 0.032 0.016 0.072** − 0.008 0.088*
(1.42) (0.43) (2.61) (− 0.17) (1.94)
Ownership 0.001 − 0.002 0.002** − 0.000 0.003*
(0.61) (− 1.20) (2.03) (− 0.48) (1.80)
constant yes yes yes yes yes
Year dummies yes yes yes yes yes
R-square 0.34 0.19 0.34 0.11 0.23
Observations 285 296 296 296 296
# of firms 96 96 96 96 96

Subsample of firms listed at CG Level 1 and the Basic market. Analysis of the determinants of corporate governance indices. Coefficients come from
firm-fixed effects regressions. BCGI is the average of the 4 other indices. The independent variables are: Tobin’s q: market value of equity plus book
value of total liabilities divided by book value of total assets; Risk: the standard deviation of firm’s weekly share prices in the year; Age: the natural
logarithm of the company’s listing years on the stock exchange; CAPEX/PPE: capital expenditure divided by property, plants and equipment; Size:
natural logarithm of total assets; Leverage: total debt divided by total assets; Growth: yearly net growth on revenues; Tangibility: fixed asset divided by
total assets; Profitability: net income divided by total asset; Margin: EBIT divided by sales; Share Liquidity: number of days with trade in the firm shares
divided by the number of trading days during the year; and Ownership: percentage of common shares held by the largest shareholder. Independent
variables are averaged over the first two lags [xt = (xt-1 + xt-2)/2]. Standard errors are clustered on firm. *, ** and *** indicate significance at the 10%,
5% and 1% levels. Coefficients statistically significant at the 10% level or better are in Boldface.

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