Country Analyses, Second Edition
Edited by Christine A. Mallin
Chapter 14: The emergence of a serious contender: corporate governance in Brazil
Ricardo P.C. Leal INSTITUTIONAL OVERVIEW In the last decade there have been some important developments in the Brazilian market. One that is well-known worldwide is the creation of special listing segments that firms may voluntarily opt for if they meet certain liquidity, transparency and corporate governance practices established by the stock exchange. The Brazilian Securities, Commodities, and Futures Exchange (BM&FBovespa) is the result of the merger of the Bovespa Stock Exchange and the BM&F commodities and derivatives exchange. It now has four listing segments for stocks, which go from the traditional listing, requiring nothing more than what is legally required from companies, to the most demanding listing segment, called Novo Mercado (New Market). The other two listing segments are intermediary between the traditional level and the Novo Mercado, and are called Level 1 and Level 2. Together, Novo Mercado and Levels 1 and 2 comprise the Special Corporate Governance Levels of the Exchange. In a nutshell, a company needs to meet additional requirements about keeping a free float of at least 25 per cent of the equity capital, using IPO mechanisms that favour stock dispersion, and offering greater transparency. Level 2 demands everything that is demanded in Level 1 plus an assortment of corporate governance practices, such as mandatory bid rights of 100 per cent of the value obtained by controlling shareholders for common shareholders and of 80 per cent of the value obtained by controlling shareholders for non-voting shareholders, a minimum number of independent directors on the...
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