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Can a Stock Exchange Improve Corporate Behavior? Evidence from Firms' Migration to Premium Listings in Brazil

48 Pages Posted: 9 Mar 2005 Last revised: 20 May 2011

Antonio Gledson De Carvalho

Fundacao Getulio Vargas School of Business at Sao Paulo

George Pennacchi

University of Illinois

Date Written: December 1, 2010

Abstract

Because Brazil’s legal system lacked protection for minority shareholders and trading of Brazilian shares was flowing to U.S. exchanges, in 2001 the São Paulo Stock Exchange, Bovespa, created three premium exchange listings that require more stringent shareholder protections. This paper examines the effects of a commitment to improved corporate disclosure and governance by firms’ voluntary migration to these premium listings. Our analysis finds that migration brings positive abnormal returns to shareholders and an increase in the trading volume of non-voting shares. Migrating firms also tend to have growth opportunities that they finance with subsequent seasoned equity offerings. These results suggest that premium listings provide a mechanism for bonding to improved corporate behavior that can be less costly than cross-listing on a U.S. exchange.

Keywords: Corporate governance, premium stock exchange, Brazil

JEL Classification: G34, G38

Suggested Citation

De Carvalho, Antonio Gledson and Pennacchi, George, Can a Stock Exchange Improve Corporate Behavior? Evidence from Firms' Migration to Premium Listings in Brazil (December 1, 2010). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=678282 or http://dx.doi.org/10.2139/ssrn.678282

Antonio Gledson De Carvalho

Fundacao Getulio Vargas School of Business at Sao Paulo ( email )

R. Itapeva, 474 - 7o. andar
Sao Paulo 01313-902
Brazil
+5511 3281-7767 (Phone)

George Pennacchi (Contact Author)

University of Illinois ( email )

4041 BIF, Box 25
515 East Gregory Drive
Champaign, IL 61820
United States
217-244-0952 (Phone)

HOME PAGE: http://www.business.illinois.edu/gpennacc/

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