We test whether a market‐level corporate governance reform in Brazil influences the behavior of firms. To do so, we first verify whether the Novo Mercado (NM)—the segment applying more stringent corporate governance practices—impacts specific firms’ financial characteristics. We also investigate if it impacts firms’ dividends and leverage, two well‐known mechanisms for mitigating agency problems. Results show the NM impacts many firms’ characteristics and reduces firms’ dividends and leverage. We thus claim that market‐level reform may be an effective trust‐enhancing mechanism and may improve minority investor protection, thus providing evidence that a country's institutional setting can evolve over time.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.