Control structure and financial performance: An analysis of listed and delisted Brazilian companies negotiated in Brazil and in the USA/Estrutura de controle e performance financeira: Uma analise de empresas brasileiras listadas e deslistadas, negociadas no Brasil e nos Estados Unidos.

AutorGranzotto, Alberto
  1. Introduction

    Since the 1980s, a process of economic and financial interdependence between countries has strengthened, driving the speed and performance of market agents. This phenomenon presents an intense and uneven acceleration of technological change between economies, as well as a new way of managing business (Dani, Santos, Santos & Toledo, 2016). In Brazil, financial globalization stands out in the 1990s with, according to Dani et al. (2016), two central axes: (i) the easing of the entry of foreign investors into the Brazilian financial market, and (ii) the adaptation of the domestic regulatory framework to the contemporary model of international financing, anchored in the issuance of securities and shares.

    In corroboration, Alves (2016) points out that Brazilian companies in many sectors of activity have sought foreign markets to increase their sales, by means of mergers and acquisitions of foreign companies, and new factories and franchises abroad, among other efforts. According to the author, financial liberalization provides corporations with more investment and financing options across borders, which ultimately affects their capital structure. According to Errunza & Miller (2000), this liberalization consolidated alternative portfolio investments and new sources of funding, such as the popularization of American Depositary Receipts (ADR). In 2017, there are more than 2,000 ADRs available, representing shares of companies located in more than 70 countries. Latin America has an estimated value of ADRs in the amount of USD 48.6 billion, with approximately 84% of this value in Brazil. In 2016, there were 125 Brazilian ADRs (Bank of New York Mellon, 2017).

    Previous research has addressed the issues of listing and dual-listing of capital and its determinants. However, the reversal of this logic in Brazil and in other countries is perceived as a recent phenomenon. Brazilian companies are practicing delisting (Going Private Transactions--GPT). While the listing decision is commonly seen as a stage in a company's growth, many questions remain about the conditions in which a company closes its capital, and the reasons for this phenomenon. Djama, Martinez & Serve (2012) emphasize that the magnitude of the phenomenon of delisting is strongly linked to the presence of institutional mechanisms that reinforce corporate governance.

    This is due to the trade-off between benefits and costs originated from the listing as well as double-listing in the North American market. The maintenance of securities trading on the capital market requires compliance with governance, transparency, disclosure, maintenance costs of the listing. These costs inherent to legal and institutional requirements may lead to the decision to delist. This scenario is even stronger when Brazilian companies negotiate their stocks in the US, due to the more rigorous conditions that characterize the differentiation between the central governance issues as well as the corporate control forces.

    According to Berk & DeMarzo (2006) the extensive relationship between the factors of differentiation of corporate governance models is based on at least four approaches: i) Prowse's approach focuses on the board of directors' constitutions and other internal mechanisms of governance; ii) La Porta, Lopes-de-Silanes and Shleifer's approach emphasizes the concentration of ownership/control and protection of minority shareholders; iii) Berglof's approach stresses the predominant financing sources, pointing out the differences between the market-oriented and bank-oriented models; and, iv) Frank and Mayer's approach emphasizes the differences attributed to internal and external control forces and their efficiency in generating systems of good governance. Berk & DeMarzo (2006) generate some differentiation factors between governance models, including (i) stage in the adoption of good governance practices; (ii) type of agency conflicts; (iii) legal protection of minority interests; and (iv) separation of ownership and management or separation between ownership and control. This paper is based on La Porta, Lopes-de-Silanes and Shleifer's approach.

    In this context, the Anglo-Saxon model (USA, UK) is characterized by strong corporate governance given its legal origin in Common Law, strong legal protection of minority shareholders, distributed shareholder control and agency conflict between the agent and the principal. Unlike the Anglo-Saxon model, the Latin American model (Brazil, Argentina, Mexico) stands out for some characteristics such as embryonic corporate governance given its legal origin in Civil Law, generally weak minority legal protection, concentration of shareholder control. These features produce the main agency conflict between major and minority shareholders (Berk & DeMarzo, 2006).

    Given this differentiation, Brazilian companies that have double-listing through ADRs are subject to different corporate governance standards, that is, to different legal requirements, regulations, accounting standards, and agency conflicts. It is necessary to understand the possible influences of corporate governance and whether they change from country to country, as indicated by literature. As mentioned above, governance establishes mechanisms that strengthen the institutional and legal context of the capital market, increasing the chances of mitigating possible agency conflicts between controlling shareholders and executives or between controlling and minority shareholders. To accomplish this, several internal and external mechanisms of governance are instituted, one of which is the control structure. Thus, the basis of control (concentrated or dissipated) can influence the financial performance of the company; however different models of corporate governance will condition this influence.

    The presence of a controlling shareholder in the US may have benefits for the company. The controlling shareholder has a large percentage of control, for which it will seek to maximize its value. It can actively monitor contracted agents and as a consequence will reduce agency costs (Denis & McConnell, 2003; Shleifer & Vishny, 1997; Jensen & Meckling, 1976). These benefits are referred to as the alignment effect. Alternatively, the presence of a controlling shareholder in Brazil is not an ideal way to mitigate such a conflict, especially when the objectives of the controlling shareholder are in conflict with those of the minorities shareholders, due to poor shareholder protection (La Porta, Lopez-De-Silanes, Shleifer & Vishny, 1999). This phenomenon is entitled the entrenchment effect.

    In this context, the paper aims to identify the influence of the control structure of the major shareholder on the accounting and market performance of listed and delisted Brazilian companies traded only on B3 in comparison with those with a cross-listing with the US (ADRs).

    In general, the main results indicate that the control structure of the major shareholder is negatively related to financial performance for delisted ADRs and positively related for the listed ADRs. These results corroborate those of Jensen & Meckling (1976), since the authors state that the more concentrated ownership structure can mitigate agency problems, providing more efficient monitoring mechanisms. As for the Brazilian companies listed on B3, the control structure of the major shareholder was positively related to the financial performance for delisted companies and negatively related for the listed companies. These results are in step with La Porta et al. (1999) and Sonza & Kloekner (2014), who indicate that weak legal protection in countries with civil law, as in the case of Brazil, makes the concentration detrimental to financial performance. This article presents empirical contributions, being the first to show the influence of a governance mechanism--control structure --on the financial performance of companies traded on B3 in comparison with those of American Depository Receipts. Our aim is to highlight the differences in terms of governance between countries and the possible influences of this on the financial performance of companies. Therefore, this paper confirms that common laws also affect Brazilian companies that are traded in the US.

    The paper is organized as follows. Section 2 presents a theoretical review on the subject. Section 3 presents the methodological aspects used in the research. Section 4 presents the results and discussions. Finally, Section 5 presents final considerations and references used as basis for the development of the study.

  2. Governance, Control Structure and Delisting: Concepts and Hypotheses

    Understanding corporate governance structures is important for a more efficient corporate market control, and to better evaluate a company's financial performance. Corporate governance guides transactions between companies and countries, and separation in terms of investment and control within the firm (Alves, 2016). Recently, companies' concerns over corporate governance practices have intensified, due to the recognition in the capital market of the importance of such practices.

    Recently in Brazil, corporate governance has undergone changes. In 2002, differentiated levels of Corporate Governance were introduced, which gave a greater incentive to promote disclosure (transparency of information) in companies. In the same year, the Brazilian Securities and Exchange Commission (CVM) published recommendations in the form of a booklet (Castro, Conceicao & Santos, 2011), stimulating corporate governance and best capital market practices. These publications, together with the Corporate Governance Best Practices Code of IBGC--Brazilian Institute of Corporate Governance, Law 10.303/11 and the adoption of international accounting practices promulgated by Law no. 11.638/2007, were milestones in the adoption of governance practices in the country Ponte, Oliveira, Luca, Oliveira, Aragao & Sena (2012).

    ...

Para continuar a ler

PEÇA SUA AVALIAÇÃO

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT