Is the Quality of Corporate Governance Associated to the Market Risk for Brazilian Energy Companies?

Abstract:     
This study estimated the quality of governance practiced by a significant sample of Brazilian publicly traded companies and a sub sample of Brazilian energy companies, between 2002 and 2006, and related it to market risk. An index composed of twenty questions, with all answers in binary form, was constructed to measure the quality of governance. Market risk was measured by the volatility of the share prices, cost of capital, Beta and idiosyncratic risk. The results obtained through the application of the method of simple and multiple linear regressions, were confirmed, with robustness, by the results obtained by the use of structural equations, confirming the original hypotheses. The effects of possible endogeneity do not harm the results obtained using the linear regressions. It seems that governance is relevant for the sample and sub sample of energy companies, though we didn't observe significant statistical results for the sub sample of energy companies.

Number of Pages in PDF File: 21

Keywords: Governance, risk, Brazilian public companies, energy companies, capital market, volatility, cost of capital, idiosyncratic risk, Beta, linear regressions and structural equations

JEL Classification: G30, C30, C33

Accepted Paper Series