Leviathan as a Minority Shareholder: A Study of Equity Purchases by the Brazilian National Development Bank (BNDES), 1995-2003

Sergio G. Lazzarini and Aldo Musacchio

No 95, Business and Economics Working Papers from Unidade de Negocios e Economia, Insper

Abstract: There is growing interest in how governments shape industries and influence firm performance. Using a database of 296 firms traded on the São Paulo stock exchange between 1995 and 2003, we find having BNDES (the Brazilian National Development Bank) as a minority owner to increase firms’ return on assets. This result is possibly due to the reduction in capital constraints provided by BNDES’ long-term equity. However, we find that the effect of BNDES’ equity is reduced when it is associated with state-owned and private-domestic pyramidal groups. Thus, our results suggest that minority stakes by a development bank can have a positive effect on performance as long as they promote long-term investments and are shielded from governmental interference and potential minority shareholder expropriation.

Pages: 29 pages
Date: 2010
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