Study Challenges The Best Practices Of The New Market
According to report, there is no evidence that New Market companies are more transparent than Level 1 companies
By Aluísio Alves
A company that rises to one of the corporate governance levels of Bovespa (the São Paulo Stock Exchange) is not necessarily more transparent. This is the controversial opinion of Kuldeep Shastri, an Indian finance professor at the University of Pittsburgh.
The conclusion was drawn based on the findings of a corporate governance study in Brazil that analyzed data on the 173 corporations that have greatest liquidity in the stock exchange. The report says that, after joining the corporate governance segments, most of the companies that were already listed recorded a period of lower volatility, greater liquidity, higher share prices, and lower cost of capital. So far, the findings were in line with those of most studies about the topic. However, the study also concludes that, as far as transparency goes, there is no difference in companies that are listed as Level 1 (the lowest) or as New Market (the most stringent). And this is not the most incisive conclusion, for Shastri says that, “No evidence supports the argument that listed companies are more transparent.”
According to Shastri, many non-listed companies already have a friendlier attitude of disclosing information to the market, particularly the larger corporations. “Giants such as Petrobras and AmBev, whose ADRs are traded in New York, are as transparent as the companies listed in the New Market.”
Shastri believes that the fact that all the companies that have gone public in recent years have been listed in the higher governance levels is due to the need to win the trust of foreign investors, since such companies have no track record of investors’ relations.
Bovespa admits that the governance level of listed and non-listed companies may be similar in large corporations, but sustains that there is a difference between adopting best practices and committing oneself to best practices. “It’s important to make sure that there is no going back,” says João Batista Fraga, corporate relations superintendent, Bovespa. Fraga also disagrees with the conclusion of the study that financial costs of complying with the rules of the segment may discourage listing.
Bovespa’s position may be closer than corporations think. This year, Cesp and Eletrobras, two power generation companies, have been listed in Level 1. CSN, a steel company, has announced that it is going to join the segment next month.
Winning prestige among investors by increasing transparency has been one of the goals of companies that join the different corporate governance levels of Bovespa. Introduced in 2001, the segment started to thrive in 2004, when the equity market picked up. Today, 84 of the 387 companies listed at Bovespa are included in one of the three corporate governance levels of the stock exchange. However, these 84 companies account for 57% of Bovespa’s market capitalization.