Corporate governance reform issues in the Brazilian equity markets

Abstract

The Brazilian equity market is characterized by relatively low liquidity, high cost of capital (low firm valuation), and limited new capital raising. Ownership concentration of corporations is high, with large wedges between control and cash flow rights, leading to large differences in pricing of non-voting and voting shares, reflecting the risks of expropriation by insiders. In recent years, much of the trading and new issuance activity has also migrated abroad. To enhance the development and the functioning of the Brazilian equity markets, beside macro-stability and lower interest rates, improvements are needed in the corporate governance framework, particularly regarding the protection of minority rights, better rules for and oversight of institutional investors, and a better trading environment, including lower taxation.

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