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
Date Written: December 1, 2010
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: Suggested Citation