Effect of regulation on corporate governance practices and the quality of justifications of Brazilian companies

Sabrina Roncato, Leticia Martins Medeiros and Arthur Frederico Lerner

Journal of Financial Regulation and Compliance, 2025, vol. 34, issue 2, 177-197

Abstract: PurposeThis study aims to investigate the influence of regulation on the adoption of corporate governance practices and the quality of justifications provided by Brazilian publicly traded companies under the “comply or explain” model.Design/methodology/approachBased on a longitudinal analysis of 476 Corporate Governance Reports from 2020 to 2024, encompassing 12,330 disclosed practices, the study examines six monitoring mechanisms across three core areas: audit committee, internal audit and risk management/internal controls/compliance. From 4,133 cases of partial or nonadoption, qualitative content analysis was conducted using a hybrid model combining supervised machine learning and human validation.FindingsCompanies listed on the Novo Mercado segment demonstrated higher rates of formal compliance and gradual improvement in justification quality. However, a persistent gap remains between adoption and meaningful disclosure, especially in other listing segments, where deficient justifications are more frequent. The findings indicate that regulatory obligation positively influences both the adoption of practices and the quality of explanations, though enforcement appears more effective in practice adoption than in disclosure standards.Research limitations/implicationsThe findings are limited to the Brazilian context, which features a unique regulatory environment and ownership structure. Comparative studies across other emerging markets are recommended.Practical implicationsThe results highlight the need for stronger regulatory oversight of not only compliance rates but also the substance of justifications. Enhanced guidance could improve the transparency and credibility of disclosures under the “comply or explain” framework.Social implicationsStrengthening governance and disclosure practices fosters investor confidence, enhances market transparency and supports the long-term sustainability of organizations.Originality/valueThis study contributes novel insights into how regulation shapes both the implementation and justification of corporate governance practices, combining traditional analysis with supervised artificial intelligence (AI) techniques in a major emerging market.

Keywords: Corporate governance; Comply or explain; Audit committee; Internal audit; Risk management (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-10-2024-0215

DOI: 10.1108/JFRC-10-2024-0215

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