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Bovespa’s Novo Mercado: Can Voluntary Reforms Promote Efficient Corporate Governance?

26 January 2005

Antonio Gledson de Carvalho
University of São Paulo
São Paulo, Brazil

Evidence from Firms’ Migration to Premium Markets in Brazil

This version: January 25, 2005


In many countries, legal reforms to improve minority investor rights often face stiff opposition and, therefore, are difficult to implement. Alternatively, some countries have attempted to reform their capital markets through the creation of private stock market segments whose members voluntarily commit to more stringent investor protections. In this paper we examine the “premium” stock market segments created by Brazil’s São Paulo Stock Exchange, Bovespa. Bovespa’s initiative was the first that allowed previously exchange-listed companies to migrate to one of three new premium markets. The voluntary migration of companies to these markets constitutes a natural experiment for analyzing the effects of an improvement in corporate governance and disclosure. In this study we find that migration brings positive abnormal returns to non-voting shares, a reduction in the voting (control) premium, and an increase in share trading volume. These results suggest that a premium market listing can substitute for cross-listing on a U.S. exchange as a mechanism for committing to improved corporate behavior.

Bovespa – Novo Mercado – Can Voluntary Reforms Promote Efficient Corporate Governance?