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Do Pension Funds Improve the Governance of Investee Companies? Evidence from the Brazilian Market

In: Corporate Governance in Emerging Markets

Author

Listed:
  • Andre Carvalhal

    (Pontifical Catholic University of Rio de Janeiro)

  • Carlos Almeida

    (Getulio Vargas Foundation, André Luiz Carvalhal da Silva)

Abstract

The role of pension funds in improving governance practices of investee companies has been vastly studied in developed countries, but there are only a few studies in emerging markets. This chapter examines the role of pension funds in the governance of investee companies in the Brazilian market. Brazil offers an interesting case study, because its governance environment is much weaker than the countries studied by most of the previous research. We use three variables to measure governance practices: a broad firm-level governance index, listing on the “New Market”, a special stock exchange segment that requires high governance standards, and issue of ADRs in the U.S. To the best of our knowledge, such comprehensive governance metrics have not been related previously to pension fund’s activism in emerging markets. Our analysis provides evidence that companies invested by pension funds have worse governance in Brazil. We use three econometric techniques to control for endogeneity, and show that there is a negative relation between pension funds and governance practices after controlling for different firm and industry characteristics. Our results are consistent with the literature that reports that institutional investors, especially pension funds, are ineffective as monitors to improve corporate governance.

Suggested Citation

  • Andre Carvalhal & Carlos Almeida, 2014. "Do Pension Funds Improve the Governance of Investee Companies? Evidence from the Brazilian Market," CSR, Sustainability, Ethics & Governance, in: Sabri Boubaker & Duc Khuong Nguyen (ed.), Corporate Governance in Emerging Markets, edition 127, pages 485-497, Springer.
    • Handle: RePEc:spr:csrchp:978-3-642-44955-0_20
    DOI: 10.1007/978-3-642-44955-0_20
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