Firms’ legitimation through corporate governance and its association with risk and return in Brazil

Abstract

Purpose This study aims to examine the listing of firms at the highest corporate governance level of the Brazilian stock exchange (B3) as a means of legitimation and its relationship with risk and return on investment. Design/methodology/approach This paper analyzes 205 companies from 2010 to 2019, in which firms listed at the Novo Mercado level were compared with groups composed of other firms traded on B3. Findings The main results demonstrate that a listing at the supposedly higher level of corporate governance in Brazil does not indicate lower risk, a higher return or even a better risk-return ratio. Research limitations/implications The findings are restricted to this sample, representing the association identified between the analyzed phenomena and not a cause-effect relationship. Practical implications The highest level of corporate governance in Brazil brings together firms that present a higher risk (at least systematic) and lower returns (at least financial) because they seek to legitimize themselves in the market as firms committed to better management practices. Social implications These findings are useful to investors, the stock exchange, regulatory agents and the companies themselves to reflect on the purpose and usefulness of different levels of corporate governance in Brazil. Originality/value This study differs from the others that relate corporate governance to risk or return because it does not deal individually with corporate governance practices, but rather the phenomenon that is listed in a special governance level, created by the stock exchange, serving as a kind of seal legitimation.

Efeito do Ciclo de Vida na Relação entre Qualidade da Governança Corporativa e Custo da Dívida das Empresas Abertas no Brasil

“…Therefore, the firm's life cycle (Turbulence and Decline) exerts a moderating effect on the relationship between the quality of corporate governance and the cost of debt. This finding complements the evidence by Miranda, Melo, and Martins (2021), demonstrating that for riskier companies, corporate governance may not only have an element of legitimacy but also represent a reduction in their cost of capital (at least that from third parties).…”

“…Regarding the CGI, we observed that the highest corporate governance indicators were for firms that were in the Birth, Maturity, and Turbulence stages, with average indicators of 63.11%, 62.44%, and 64.44%, respectively. This can be explained by the greater concern of these companies with their legitimacy in the capital market, as observed by Miranda, Melo, and Martins (2021). However, all stages have very close mean and median values.…”

“…In their classic study, Jensen and Meckling (1976) address the separation of ownership and control, as well as conflicts of interest and the repercussions of this on the value of firms. In stock markets like the Brazilian one, corporate governance practices can even be used as a means of legitimization by firms, as pointed out by Miranda, Melo, and Martins (2021).…”

Pengaruh Good Corporate Governance Terhadap Kinerja Keuangan Perusahaan Perbankan Di Bursa Efek Indonesia

“…Proksi komposisi dewan komisaris, kepemilikan manajerial dan kepemilikan institusional tersebut menyebabkan proksi keberadaan komite audit tidak lagi relevan karena sebagaimana diatur dalam POJK nomor 55/POJK.04/2015, "seluruh perusahaan go public harus memiliki komite audit minimal beranggotakan tiga orang dengan diketuai oleh komisaris independen, sehingga seluruh perusahaan yang terdaftar di dalam Bursa Efek Indonesia (BEI) pasti memiliki komite audit masing-masing." Dikutip dari Miranda et al (2021), "Profitabilitas merupakan indikator yang paling tepat untuk mengukur kinerja suatu bank. Profitabilitas menggambarkan kemampuan perusahaan menghasilkan laba.…”

Stakeholder relationship capability and investment efficiency: a mosaic theory test

“…With the constant increase of innovations in developed countries, and with the need of defining essential regulation in developing countries, nowadays, policymakers in the crowd-based contexts must be able to ensure that users can invest with security and transparency, with defined rights, and rules first of all (Cicchiello et al, 2021). Regulation is a natural response to internal and external negative facts such as systemic risk caused by asymmetric information, lemon problems or other events that compromise the stability of the market (Miranda et al, 2021). Information has always been a necessity as a basis for the development of interactions, especially in a competitive environment.…”