Do Pension Funds Improve the Governance of Investee Companies? Evidence from the Brazilian Market

Andre Carvalhal () and Carlos Almeida
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Andre Carvalhal: Pontifical Catholic University of Rio de Janeiro
Carlos Almeida: Getulio Vargas Foundation, André Luiz Carvalhal da Silva

A chapter in Corporate Governance in Emerging Markets, 2014, pp 485-497 from Springer

Abstract: Abstract The role of pension funds in improving governance practices of investee companies has been vastly studied in developed countries, but there are only a few studies in emerging markets. This chapter examines the role of pension funds in the governance of investee companies in the Brazilian market. Brazil offers an interesting case study, because its governance environment is much weaker than the countries studied by most of the previous research. We use three variables to measure governance practices: a broad firm-level governance index, listing on the “New Market”, a special stock exchange segment that requires high governance standards, and issue of ADRs in the U.S. To the best of our knowledge, such comprehensive governance metrics have not been related previously to pension fund’s activism in emerging markets. Our analysis provides evidence that companies invested by pension funds have worse governance in Brazil. We use three econometric techniques to control for endogeneity, and show that there is a negative relation between pension funds and governance practices after controlling for different firm and industry characteristics. Our results are consistent with the literature that reports that institutional investors, especially pension funds, are ineffective as monitors to improve corporate governance.

Keywords: Corporate Governance; Institutional Investor; Pension Fund; Firm Characteristic; Minority Shareholder (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:csrchp:978-3-642-44955-0_20

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DOI: 10.1007/978-3-642-44955-0_20

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