10 1108 - CG 11 2019 0355

The evolution of corporate governance and
agency control: the effectiveness of

mechanisms in creating value for companies
with IPO on the Brazilian stock exchange
Francisco Elder Escossio de Barros, Ruan Carlos dos Santos, Lidinei Eder Orso and
Antonia Marcia Rodrigues Sousa
Abstract Francisco Elder Escossio

Purpose – From the agency theory’s point of view, this paper aims to analyze corporate governance de Barros is based at
mechanisms about the characteristics of the companies quoted in the segments Bovespa Mais and Program Posgratuation in
Administration, UNIVALI,
Bovespa Mais 2 and their influence on the creation of value in preparation for the opening of the initial Biguaçu, Brazil and
public offering (IPO). Program of Gradution in
Design/methodology/approach – A quantitative approach was adopted to achieve the proposed Administration, Faculdade
objective using the panel data with fixed effects and secondary data collected on the Comissão de Luciano Feijão – FLF,
Valores Mobiliários website, using statistical software StataV R 13.0 for statistical tests. The
Sobral, Brazil.
Ruan Carlos dos Santos is
population comprises non-financial companies belonging to the Bovespa Mais and Bovespa Mais based at Program
Level 2 groups, as the survey sample took into account the period of adhesion of the companies, Postgraduate in
totaled in 15 companies, which cover the period from 2008 to 2019. The selected variables Administration,
correspond to the ownership structure’s characteristics, then the board’s composition and the fiscal Universidade do Vale do
council as the body responsible for supervising the administrators’ acts. Itajai, Biguaçu, Brazil and
Program of Gradution in
Findings – The main results indicate that the number of independent members on the board of directors Administration, Centro
and the supervisory board’s participation positively influence market performance. However, it also Universita rio Avantis –
reveals that the concentration of ownership brings fundraising for other companies’ acquisitions, risk UNIAVAN, Balneario
reduction concerning information asymmetry between investing powers. Camboriu , Brazil.
Research limitations/implications – The main results indicate that the number of independent Lidinei Eder Orso is based
at Programa de
members on the board of directors and the supervisory board’s participation positively influence market Pos-graduação em
performance. Despite this, it also reveals that the concentration of ownership brings fundraising for other Administração,
companies’ acquisitions, risk reduction concerning information asymmetry between investing powers. Universidade do Vale do
Practical implications – This paper advances a comparative institutional perspective to explain capital Itajai, Balnea rio Camboriu,
Brazil. Antonia Ma rcia
market choice by firms making an IPO in a foreign market. This paper finds that internal governance
Rodrigues Sousa is based
characteristics (founder-chief executive officer, executive incentives and board independence) and at Programa de Graduação
external network characteristics (prestigious underwriters, degree of venture capitalist syndication and em Ciências Econômicas,
board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Universidade Federal do
Social implications – While product market choices have been central to strategy formulation for firms Ceara, Sobral, Brazil.
in the past, financial markets’ integration makes capital markets an equally crucial strategic decision. This
paper advances a comparative institutional perspective to explain capital market choice by firms making
an IPO in a foreign market.
Originality/value – This situation generates value to shareholders and is perceived by the market and,
ultimately, generates a direct relationship with the market performance of companies. While product
market choices have been central to strategy formulation for firms in the past, financial markets’ Received 23 November 2019
integration makes capital markets an equally major strategic decision. Revised 19 March 2020
31 May 2020
Keywords Corporate governance, Financial performance, Agency theory, Institutions, 9 October 2020
Initial public offerings 15 November 2020
28 December 2020
Paper type Research paper Accepted 31 December 2020
DOI 10.1108/CG-11-2019-0355 VOL. 21 NO. 5 2021, pp. 775-814, © Emerald Publishing Limited, ISSN 1472-0701 j CORPORATE GOVERNANCE j PAGE 775
1. Introduction
The past decade of the 20th century was marked by financial fraud and worldwide
repercussions, among which are Enron and WorldCom cases in the US. Following these
scandals, the authorities began to pay more attention to the issues surrounding the veracity
of the accounting information disclosed and the negotiations conducted (Chi, 2009).
Furthermore, in Brazil, strict fraud and corruption problems in organizations occurred in the
first and second decades of the 21st century, as was Santos Bank, Boi Gordo and Daslu
(Costa and Wood, 2012) of Oleo e Gás Participações S.A. and Petróleo Brasileiro S.A.
The pricing of an IPO reflects the quality of the issuing company and the market conditions
at the issuance time. Thus, the organizational strategy, especially the ownership structure
and corporate governance, can influence the issuance of shares in an initial public offering
(IPO) (Pham et al., 2003). The public offering of shares alters many of the firm’s
characteristics, especially its ownership structure. No legal system regulating corporate
governance inexorably ensures the necessary security for minorities. In this sense, La Porta
et al. (1999) indicate that the concentration of power is a mechanism that significantly
affects investor return.
Additionally, Yeh et al. (2008) examined the incentive for large investors to use the IPO price
as a way to maintain post-issue control. The authors demonstrate that when large
shareholders can exercise control through excess power (high concentration of shares), an
incremental disincentive for underpricing arises (Aguilera et al., 2019). Thus, this paper’s
first hypothesis will test the influence of controllers’ concentration on partial price
adjustment.
The impacts of the recent financial crisis are clear when highlighting governance
weaknesses, which, therefore, affected investors’ reliability. Therefore, corporate
governance provides the capital market with relevant information for decision-making.
According to Ariffl et al. (2007), in addition to information about companies’ financial health
and performance, investors also need to know how they are being managed. According to
them, the quality of corporate governance practices is seen as a source of information that
provides additional decision-making criteria. For Aguilera et al. (2016) and Claessens and
Yurtoglu (2013), the popularization of Governance Corporate (GC) both in the academic
field, and organizational and political context, highlights the importance and necessity of
incentive and improve the effectiveness of monitoring mechanisms (Gonza lez and Calluzzo,
2019).
Here, corporate governance practices were implemented by B3 (Brazil, Bag, Branch,
Counter) – formerly BM&FBOVESPA, in December 2000, by inserting the corporate
governance segments with requirements that go beyond the obligations that companies
have before the Brazilian Corporation Law (Law No. 6,404/1976). The objective of the
implementation of corporate governance practices was to improve the evaluation of
companies that voluntarily decide to join one of the segments and provide a trading
environment that stimulates investors’ interest and the valuation of companies
(BM&FBOVESPA, 2018). Thus, the set of regulatory bodies, policies, laws and processes,
for the relationship between partners, directors and employees, is necessary for
companies’ management in adopting practices. In this context, Corporate Governance
“aims to provide security for shareholders and creditors, with the aim not to allow them to be
expropriated by company executives” (Correa and Bortoluzzi, 2015).
The corporate governance levels were created in Brazil to contain a loss of turnover for
other markets, as it was believed that this loss would be related to weak protection for
minority shareholders (Black et al., 2014). However, the creation of the Bovespa Mais
segment from B3 in 2005 seeks to contribute to the development of the Brazilian stock
market and foster small and medium-sized companies’ growth. According to the rules of the
segment, companies adhere to corporate governance and achieve a maximum term of
PAGE 776 j CORPORATE GOVERNANCE j VOL. 21 NO. 5 2021

seven years to carry out their IPO by listing their shares on Bovespa Mais. The listed
companies assume corporate governance standards and transparency with the market at a
lower level than the Novo Mercado companies (Braga-Alves and Shastri, 2011).
The choice of the companies belonging to the listing segments Bovespa Mais and Bovespa
More Level 2 was because these segments, formed by small and medium-sized companies
that wish to raise funds for their growth project via the stock exchange, are a model planned
by B3 to make it accessible to a larger number of companies. These listing segments are
designed to bring together high growth potential, medium and long-term investors whose
concern for potential returns outweighs the need for immediate liquidity. The companies in
these listing segments acquire benefits such as not necessarily having to place outstanding
shares in the market, in addition to clearly signaling their commitment to acceptable
corporate governance practices (BM&FBOVESPA, 2018).
The reduction of institutional asymmetry is defined by the board of directors and the fiscal
council (Baioco and Almeida, 2017). The installation of the fiscal council occurs according
to the demands of the shareholders. It is not the responsibility of the fiscal council to carry
out management activity. The fiscal council’s activities are to supervise the administrators’
legal and statutory duties after a decision at a general meeting ordered by the shareholders
(IBGC. Instituto Brasileiro de Governança Corporativa, 2015). The Fiscal Councils set up in
Brazilian companies should be composed of professionals nominated by the minority – non-
controlling, common and preferred stockholders – and majority shareholders. The Fiscal
Council’s primary function is to monitor the activities and financial statements of a company.
The shareholders at any ordinary or extraordinary general assembly nominate it, and its
responsibilities are to the shareholders only (Procianoy and Decourt, 2014).
What is evident with the companies of the hypothetical portfolio of Bovespa is that the
performance of the IPO can be affected by the characteristics of corporate governance
(Sahoo, 2017). Based on Aggarwal et al. (2007), contribution shows that governance
mechanisms include not only the laws of a country but also the presence of external audit
(Aguilera et al., 2015), which explores the effects of corporate governance on corporate
investment, stock yield and company growth through shareholder interests in the portfolio of
these companies (Becht et al., 2003).
Given the governance mechanisms mentioned above, this research will focus on the
governance mechanisms found in the companies participating in the listing segments
Bovespa Mais and Bovespa Mais Level 2. Those will be analyzed by small and medium-
sized companies that seek to raise funds for their growth via the stock exchange and for
being a model planned by B3 to make it accessible to a more significant number of
companies. Inserted in this discussion, the inquiry that guides this research is: does the
implementation of corporate governance mechanisms of Bovespa Mais listed companies
tend to influence value creation for investors in the preparation of the IPO?
The research perspective brings plausibility among the literature among the institutional
analysis, influencing corporate governance mechanism, but provides contributions to
companies’ evolution through the IPO in the stock market. The research integrates
stakeholder management and institutional perspectives for the number of contributions to
previous research. Three aspects stand out:
1) The effects of signaling the governance characteristics of the firm has little evidence on
performance (Judge et al., 2014), suggesting that these countries of origin of stakeholders
maybe another set of guarantees that significantly affect performance (Hearn et al., 2016).
2) The IPO performance results have a characteristic of each country, being affected by the
relationship “interest x origin” among those associated with investor protection in the
company’s country (Cuomo et al., 2013). He develops theoretical arguments and empirical
evidence.
VOL. 21 NO. 5 2021 j CORPORATE GOVERNANCE j PAGE 777

3) The impact of corporate governance on the performance of the IPO has been limited to
unique institutional environments, being a legacy of the external mechanism that focuses on
the legal and regulatory system of each country, where the institutional environment in
which these studies are performed should impact on the stock market (La Porta et al.,
1997). Thus, this study’s conceptual contributions include integrating institutional and
stakeholder theories in business management (Zaid et al., 2020). More specifically,
scholars tend to treat the structure of agency as a universal theory.
With the findings of this research, we intend to contribute, theoretically and empirically, with
the description of the state of the art of research regarding the external mechanisms of
knowledge management (KM) in Brazil and the world, the synthesis of the role of internal
mechanisms and as complementary tools for transparency and good KM and the indication
of future research possibilities that deepen the evaluation of external mechanisms and their
interaction with internal mechanisms to reduce information and interest asymmetries among
agents involved (Yensen et al., 2017).
2. Theoretical background
2.1 Theory of the agency
The agency theory deals with the set of implicit or explicit contracts of one or more persons
called principal, establish formal relations with another called agent (Jensen and Meckling,
1976). According to the agency theory, the conflict is generated by the interest of the
agents in obtaining private results and not jointly with the owners.
According to Eisenhardt (1989), conflict occurs when the agent makes decisions to
increase his wealth and does not maximize the owners’ profit or the difference in the risk
perception between the agent and the principal. If the company experiences a conflict
inherent in dispersed ownership or can be said to be pulverized, the central agency conflict
is between managers and shareholders (Shleifer and Vishny, 1986). This conflict is because
the contracts do not have explicit limits to reduce the agent’s power. However, if the
company has ownership characteristics concentrated in a majority shareholder, the central
agency conflict tends to be between this and the minority shareholders (Fraga and Silva,
2012).
In the light of this analysis, one reinforces the one pointed out by L’Huillier (2014) and
Aguilera et al. (2015) that each definition is associated with the researcher’s, for example,
economically and financially biased scholars start from the Shleifer definition and La Porta
et al. (1997), related to the return on investment. On the other hand, the sociological related
to the allocation of power and resources (Davis, 2005) and the stakeholders’ perspective is
associated with all stakeholders’ rights and responsibilities (Aguilera et al., 2018).
According to Ahrens et al. (2011), the agency theory has been treated as a theory
universality that applies to different institutional contexts. From this perspective, it is
attributed to the role of minimizing conflicts of interest between agent and principal and
maximizing value to the shareholder (Denis and Mcconnell, 2003). There is a growing
recognition of the vital role of GC mechanisms in enhancing financial reporting quality,
aligning management’s interests with those of the shareholders, and reducing the agency
and information asymmetry problems (Juhmani, 2017). This recognition is reflected in its
popularity in the area’s research, being the theory most used (Mnif and Borgi, 2020).
Agency problems occur when the principal does not have the power or information needed
to monitor and control the agent and when the principal and agent offsets are not aligned,
according to Macey and O’hara (2003). The spraying of stock control and the separation of
ownership and management gave rise to passive owners and conflicts of interests between
shareholders and managers, called agency conflicts. However, there was a significant
change in companies’ corporate structure because before, the structure was concentrated
in a person or a small group, and today it is composed of several shareholders. The

management of the companies was also changed, as the owner was the manager and chief
executive, and today there is a separation between the shareholders who own the capital
and the managers who manage the capital invested by the shareholders (Martin et al.,
2004).
The predominant corporate governance model has developed economies (primarily the US
and the UK). The institutional context lends itself to relatively efficient enforcement of arm’s-
length agency contracts (Mishra et al., 2001; Goranova and Ryan, 2014). In developed
economies, because ownership and control are often separated, and legal mechanisms
protect owners’ interests, the governance conflicts that receive the lion’s share of attention
are the principal-agent conflicts between owners (principals) and managers (agents)
(Jensen and Meckling, 1976; Garcı́a-Meca et al., 2017). However, in emerging economies,
the institutional context makes the enforcement of agency contracts more costly and
problematic (Nagar et al., 2011). These contracts result in the prevalence of concentrated
firm ownership (Abrahamson and De Ridder, 2015). Concentrated ownership, combined
with an absence of effective external governance mechanisms, results in more frequent
conflicts between controlling shareholders and minority shareholders (Huyghebaert and
Wang, 2012).
These conflicts have led to the development of a new perspective on corporate
governance, which focuses on the conflicts between different sets of principals in the firm.
This scenario has come to be known as the principal–principle model of corporate
governance, which centers on conflicts between the controlling and minority shareholders
in a firm (Dalton and Dalton, 2011). The main-principal conflict, defined as the incongruence
of objectives between groups of shareholders in a company, particularly among controlling
and minority shareholders, induces key executives to become representatives of the
controlling shareholder (Li and Qian, 2013; Young et al., 2008). Although more studied in
emerging economies and little studied in the public sector, such a conflict can better
express governance problems in state-owned companies. Even in private ownership
situations, the state acts of hegemonic mode and often with little interest in accommodating
private interests.
When analyzing the KM as a process, the models and mechanisms that ensure
effectiveness in decision-making, in the development of monitoring practices, demonstrate
a concern with the efficiency in the allocation of resources, which is a branch from the
theory (Brickley and Zimmerman, 2010; Christopher, 2010; Claessens and Yurtoglu, 2013).
2.2 Corporate governance and initial public offering

Corporate governance is attentive to the view of agency theory. The board of directors
closely follows its impact on the asymmetry of processes and any change. The body of
property structure in the companies’ occurrence at the time of the IPOs, subsequent the
long-term investments, without affecting the performance of companies and the effects of
changes in the contribution to long-term operations. The contribution is focused on
suggesting that high governance costs, both direct (monitoring and linking) and indirect
(through the distraction of managers and board members), can contribute significantly to
the long-term lack of performance by newly-negotiated.
For Chahine and Filatotchev (2008), these changes stemming from the culture of countries
and of various types of shareholders in multinational and transnational property structures
encourage the monitoring of IPO issues that, even because of the opportunism obtained by
members of the board of directors and responsible for strategic operations of the
companies, as the IPO process potentiates distractions at the expense of opportunistic
behavior managers in the negotiations (Arthurs et al., 2008). However, Roosenboom and
Van-Der-Goot (2005) emphasize that agency theory and the corporate board’s monitoring

function should be understood by the optic relationship between boards and IPO
companies’ performance (Ben Ahmed et al., 2020).
The creation of mechanisms that align the shareholders’ interests with those of the
corporations’ managers appeared as necessary as the firms opened their capital to the
public. This need defines the separation of control and ownership between the managers
and the companies’ shareholders (Schiehll and Martins, 2016). This set of mechanisms,
referred to as corporate governance, aimed, in principle, to encourage managers to
maximize shareholder return on investment. With the development of markets over time, this
concept has been broadened as the various stakeholders’ relationships become more
stomo et al.,
complex, generating other types of conflicts of interest and agency costs (Criso
2011). Such conflicts require the company to demonstrate responsibility to stakeholders.
Thus, the relevance of acceptable governance practices to the success of an IPO is
increasingly present because of the market’s demands.
2.3 Mechanisms of corporate governance

From the changes that occurred in the economy in the 1980s, Jensen and Meckling (2008)
analyzed and described the factors responsible for the increase in corporate performance
and the factors that triggered corporate controls’ inefficiency. He also points out that there
are four corporate governance mechanisms to address agency problems. These are the
capital market, the legal, political and regulatory environment, the industry’s competitive
market and the internal control systems led by the board of directors.
For Denis and Mcconnell (2003), corporate governance mechanisms can be classified in
the internal board of directors and property structure; and external, external market
(mergers and acquisitions) and legal system. According to Silveira et al. (2008), corporate
governance is a set of internal and external mechanisms of incentive and control aimed at
minimizing agency conflicts and aligning managers’ and shareholders’ interests in the
situation of separation of ownership and control. The author considers governance
mechanisms, the board of directors, the ownership structure, the compensation system, the
hostile takeover market, the competitive labor market and the periodically audited
accounting reports (Fiscal Council) as governance mechanisms.
Aguilera et al. (2015) reviewed and presented the internal and external mechanisms. The
authors indicate the board of directors, ownership, administrative incentives; and external
mechanisms, namely, the legal system, control, external audit, stakeholder activity,
classification of organizations and the media. The following will address the internal
mechanisms of corporate governance, ownership structure, the board of directors and
fiscal council.
Recent research has highlighted the relationship between profit quality and corporate
governance mechanisms (Athanasakou and Olsson, 2012; Choi et al., 2013; El-Sayed
Ebaid, 2013; Hazarika et al., 2012; Jiang and Anandarajan, 2009; Sa enz Gonza lez and
Garcı́a-Meca, 2014; Álvarez-Otero and Lopez-Iturriaga, 2018; Aguilera et al., 2018; Shen,
2019; Li et al., 2020). These perspectives, according to the discussions of the theoretical
aspects of the contribution of mechanisms in the evolution of corporate governance and the
expansion of companies in IPO processes, have highlighted the impact of various
corporate governance mechanisms on the quality of profit, e.g. institutional shareholdings
(proportion of government holdings by financial institutions); Fiscal Council and Auditor
Quality; ownership concentration (proportion of shares held by the largest shareholder in
the company); and, Participation in the differentiated levels of corporate governance of
companies listed in B3.
2.3.1 Structure property. Among the internal mechanisms, the ownership structure is
the one that takes care of the relationship between shareholders and executives
(Jensen and Meckling, 1976; Caixe and Kruter, 2013), concentration and spraying of

companies, as well as diversified shareholder types of organizations (Galdi and
Menezes, 2010).
Research such as Bruton et al. (2010) has studied the effect of ownership concentration on
IPO performance in the UK and France and found that concentrated ownership improves
IPO performance. In line with the agency theory, the authors argue that ownership
concentration reduces the asymmetric information problems associated with diffuse
ownership (Barry et al., 1990; PeiZhi and Ramzan, 2020). This idea is consistent with Klein
(1996), who reported a positive relationship between the proportion of shares retained by
insiders at the IPO and the market price. Property structure, considered as the primary
internal mechanism of governance, gains prominence in countries with a high concentration
of ownership, as happens in Brazil (Politelo et al., 2013), as Brazilian companies have a
concentration on ownership and control (Silveira et al., 2008; Galdi and Menezes, 2010)
through an agreement among shareholders, non-voting shares and corporate pyramids
(Gorga, 2008).
The effect of ownership concentration on the initial valuation of IPOs might prove quite
different in Spain, given the specific characteristics of listed firms’ ownership structure
(Gonzalez et al., 2017). In this context, the main agency problem may arise from the conflict
between large, dominant shareholders and minority shareholders (Bona Sa nchez et al.,
2013).
Politelo et al. (2013) present different structures among the companies analyzed in B3.
Various structures of companies with a high concentration of capital, with institutional
investors, family, foreign investors, to companies with low concentrations of capital,
occurring in which there is no presence of one or more of these investors. These different
structures present a positive aspect because otherwise, it would undermine the monitoring
of the board’s decisions, favoring the agency conflicts. According to Silva et al. (2002), as
owners and controlling companies, there are several groups of investors, namely, banks
and insurance companies, other companies, individuals, foreigners, etc. (Santos et al.,
2018).
Our analysis of the influence of ownership structure also explores the impact of a range of
possible shareholders, namely, banks, mutual funds, venture capital, family shareholders
and other non-financial firms. The rationale behind this choice of variables is multiple. First,
family and non-financial firms may have a longer-term orientation (Hamilton et al., 2017). In
contrast, financial intermediaries such as investment funds, banks or venture capital firms
may be oriented toward short-term financial performance (Reyna, 2012).
For the authors, Brazil has similarities to countries such as France and Germany, where the
principal direct shareholders are other companies, followed by families and individuals, as
well as the US and England, the large shareholders who accumulate more than 5% of the
capital of the company, are primarily made up of individuals, pension funds, mutual funds
and insurance companies. Adopting an informational approach, Sa nchez Ballesta and
Garcı́a Meca (2007) and Santana Martı́n et al. (2007) show that high ownership
concentration levels could lead to less informative earnings. In turn, we posit that large
shareholders exploit asymmetric information and do not disclose all the relevant corporate
information (Prazeres, 2018).
Still, about the concentration of ownership, more specifically, the concentration of post-IPO
power, Shleifer and Vishny (1997) described how companies seek capital for investment.
These authors mention that some companies can capture resources without giving power in
return due to their reputation in the market or too much investors’ optimism. In this sense,
the choice for a public offering of shares preferred – shares that entitle the shareholder to
participate in the company’s cash flow but do not give the right to vote – may be an
indication that the company has a good reputation in the market (Collares, 2020). Therefore,

to verify the ownership structure and performance of the Brazilian companies listed in B3,
the following hypothesis was taken:
H1. “The participation concentrated of shareholders in the ownership structure in B3
companies positively affect their performance.”
2.3.1.1 Creation of value of the structure’s properties through initial public offers. The initial
stock offering is a relevant event in a company’s life. In theory, the IPO is a way. to create
liquidity for the shares, facilitating the sale of the company, enabling the capture of
resources for its growth, allowing the current shareholders to obtain a diversification of
business risk and allowing venture capital companies or private equity sell their business
and increase their transparency vis-à-vis shareholders (Celikyurt et al., 2010).
With the recent incentives and instruments introduced in the Brazilian capital market, the
number of IPOs in the Brazilian economy until the beginning of the number of approved
listings is increasing, especially in 2006 and 2007, compared to foreign markets. According
to the BM&FBOVESPA (2018), between 2000 and 2005, less than 10 companies were listed
each year, while in 2006, 26 listed companies. In 2007, the number of IPOs increased
considerably, as they were 64 capital openings, 8 openings in Level 1 of GC, 7 in Level 2,
43 in the New Market and 6 launches of Brazilian Depositary Receipts.
Unlike English-speaking countries, the Brazilian corporate system’s institutional
characteristics and capital markets call for further research (Procianoy and Decourt, 2012).
First, the ownership of Brazil listed firms is highly concentrated in the hands of just a few
blockholders, namely, mainly families, other non-financial firms and banks (Santana and
Aguiar, 2006; Santos et al., 2019). This concentrated ownership results in less separation
between corporate ownership and control, which reduces the degree of ex-ante uncertainty
regarding the value of the firm with a view to IPOs and the level of underpricing (Álvarez-
Otero and Lo pez-Iturriaga, 2018). In contrast to their American or British counterparts,
banks in Spain are the primary funding providers for quoted companies and act as
controlling shareholders holding blocks of shares. This overlap between shareholders and
debt holders reduces the agency costs associated with debt/equity trade-offs but triggers a
conflict of interests among shareholders (Mishra et al., 2001).
Second, as Brazilian stock markets are not as developed as those in the English-speaking
world (La Porta et al., 2008), corporate finance relies more on banks than on capital
markets. Hence, the degree of information asymmetry between issuer and bank regarding
the company’s value is lower. Given the narrow capital market, firms, which went public in
Spain, are usually mature and well-known to both investors and financial entities. This
maturity might provide additional justification for the lower levels of IPO underpricing in
Spain compared to the US (Mishra and Mohanty, 2014).
Third, the Brazilian context differs in terms of the amount of existing public information
before the IPO, which can also reduce information asymmetry between the firm and investor
(Alanazi and Al-Zoubi, 2015). Companies often begin their preparations to go public well
before they embark on the IPO process. A typical IPO launch process can take around
6–12 months. On the US market, once a company reaches a preliminary understanding with
its underwriters, the IPO process starts in full force, followed by a “quiet period” during
which the company is subject to Securities and Exchange Commission guidelines
regarding the publication of information not contained in its prospectus (Anand and Singh,
2019). However, Brazilian firms are allowed to promote business and disclose information
regarding its value both before and after registering the IPO prospectus. The period before
IPO registration is particularly relevant as it is thought to generate expectations about the
firm and, in turn, seeks to reduce the asymmetric information between firm insiders and
outside investors (Pasin et al., 2006).
Besides, other factors that may influence a company’s decision to become a publicly-held
company are related to its marketing because of the greater attention and publicity of the

media to publicly traded companies (Álvarez-Otero and Lopez-Iturriaga, 2018), as well as
public companies, can reduce the costs of fundraising. Moreover, to the fact that
entrepreneurs want to go to the Stock Exchange to establish a price of their stock (to
reduce valuation uncertainties) as a first step to sell the company later (Hartzell et al., 2008).
According to BM&FBOVESPA (2018), the IPO provides the company with resources at
cheaper costs than raising bank financing, making its brand stronger along with the market
and reinforcing corporate governance criteria.
Boulton et al. (2010) studied how different countries’ governance levels affect IPO
underpricing. The authors found that underpricing is higher in countries with corporate
governance, strengthening investors’ position about members with direct action and power
in the company’s management. In other words, underpricing is the cost that insiders pay to
maintain control in countries with legal systems built to empower outsiders. When the
governance level is higher, the ownership structure protects the managers, reducing the
need for dispersion of actions through underpricing. In the Brazilian case, the new market is
the designation of the highest level of corporate governance in the capital market, and
companies on the Bovespa Mais are companies that begin to follow the steps and steps to
follow the high level of the Brazilian stock market on the Bovespa.
2.3.2 Board of administration. The board of directors’ internal governance mechanism
focuses on the management and monitoring shareholders’ interests (Mendes-Da-Silva and
Grzybovski, 2006). How the boards of directors’ composition and the types of directorships
in the organizations are recognized are factors that collaborate and justify their performance
(Denis and McConnell, 2003; Aguilera and Desender, 2012).
The board of directors’ internal governance mechanism focuses on the management and
monitoring shareholders’ interests (Mendes-Da-Silva and Grzybovski, 2006). How the
boards of directors’ composition and the types of directorships in the organizations are
recognized are factors that collaborate and justify their performance (Denis and McConnell,
2003; Aguilera and Desender, 2012).
The board of directors is the most crucial internal governance mechanism within a firm
(Acero and Alcalde, 2012). Given the influence of corporate governance on insider
information and incentives, it makes sense to study whether the board of directors’
characteristics affect IPO results. However, few studies have addressed the relationship
between board characteristics and IPOs (Filatotchev and Bishop, 2002). Chahine and
Filatotchev (2011) examine the effects of non-executive board members, the audit
committee’s composition and financial expertize and the fees paid to audit firms on the
value of IPOs and find that underpricing decreases about audit fees and increases
concerning non-audit fees.
As far as the directors’ participation in the firm’s ownership is concerned, the main
explanation is related to the alignment/entrenchment hypotheses (Sa nchez Ballesta and
Garcı́a Meca, 2007). The underlying rationale is that conflicts of interests within the firm may
arise due to the separation between ownership and control. There should be a convergence
of interests for low levels of managerial ownership with those of other shareholders (Dal
Vesco and Beuren, 2016). However, above a given threshold, managers may become
entrenched and take decisions at the other shareholders’ expense. Consequently, we
propose an inverted U-shape effect of director ownership on IPO undervaluation (Abascal
and Gonza lez, 2019).
As regard the size of the board, the evidence is conflicting. While decision-making is easier
on small boards, large boards can improve decisions by bringing more information to
discussions (Cheng et al., 2008). Larger boards are positively related to intellectual capital
(Abeysekera, 2010). Given that IPO underpricing is based on informational differences, we
posit that asymmetric information should decrease with an increased board size (Paniagua
et al., 2018).

The characteristics of the boards of directors most often studied in the literature are
independence [both in terms of composition and the dual role of chief executive officer
(CEO)/chairman of the board], size, activity and directors’ participation in firm ownership
(Huse et al., 2011). Despite the lack of conclusive evidence, the predominant view is that
independent boards improve corporate governance (Dalton and Dalton, 2011). As
suggested by Judge et al. (2015), the relationship between the boards of directors and IPO
underpricing may be because of directors’ knowledge. Independent directors are assumed
to ensure better monitoring and bring resources such as connections and information
(Conyon and He, 2017).
Andrade and Rossetti (2009), in a study of the board of directors of Brazilian companies,
identified that the highest number of directors and simultaneous increase of independent
directors is proportional to companies’ growth. The authors justify that the proportionality of
the board is because of new requirements of the stock market and the need for companies
to obtain new sources of financing costs more advantageous than the capital of third
parties, frequently found in the domestic market (Sonza and Kloeckner, 2014; Allam, 2018).
Combining the above arguments, the second hypothesis to be tested is as follows:
H2. “The number of independent board members in the B3 companies positively affects
their performance.”
2.3.3 Council fiscal. Due to a legal provision in the Law of Corporations, due to the Fiscal
Council’s existence, art. 162 of Law 6,404/76, the US market analysis committee admitted
that companies with their shares traded on a US stock exchange could replace the fiscal
council’s audit committee, subject to some technical modifications and coverage practices,
as discussed by Strahota and Tafara (2005). Unlike other countries, Brazil presents a
characteristic that is the creation of the Fiscal Council. It is a body elected by the general
meeting to oversee the managers’ acts to examine and express an opinion on the external
audit’s financial statements and inform the shareholders (IBGC. Instituto Brasileiro de
Governança Corporativa, 2015).
The general shareholders’ meeting elects the fiscal council, independent of the executive
board and the board of directors of the company, with the function of supervising the acts of
the executive board and the board of directors, opines on proposals from the management
bodies, examines and opines on the financial statements audited by the external audit,
seeking to preserve the rights of shareholders (Baioco and Almeida, 2017). For the Instituto
Brasileiro de Governança Corporativa (IBGC) (IBGC. Instituto Brasileiro de Governança
Corporativa, 2015), the fiscal council’s duties are considered an integral part of the
corporate governance system of Brazilian organizations. For the same body, the
participation of the fiscal council generates the following benefits for shareholders:
As a result of the law, it is independent of the board of directors. It is an instance of comfort
for administrators. The monitoring of risk capital processes contributes to the company’s
value. It may be the only defense instance, within the scope of society, available to
shareholders. The directors’ performance must be guided by equity, transparency,
independence and reliability (Botelho et al., 2016).
The supervisory board is accountable to shareholders for its oversight of the board of
directors’ acts and provides its opinion on the financial statements examined by the external
auditor. The performance of the counselor is at the same time collegial and individual.
According to this author, the situation of the fiscal councilors is in two plans, namely, first,
the plan of the tie to his electorate and another plan related to the situation of the prosecutor
in the scope of the council, the projections before the other organs and their entailment to
the regime of responsibility (Folster et al., 2016).
The Brazilian Institute of Corporate Governance (IBGC. Instituto Brasileiro de
Governança Corporativa, 2015, p. 11) points out that this body enjoys autonomy
concerning its counterpart by stating that the fiscal council is “an independent

supervisory body of the board of directors and the board of directors, which seeks,
through the principles of transparency, equity and accountability, to contribute to the
better performance of the company.” The fiscal council shall function in any way, whether
or not the minority shareholders and preferred shareholders appoint their representatives
to the board. This rule is because internal control in these entities is fundamental, given
the public entity’s impersonality controls it and the public agents that administer it
(Carvalhosa, 2003).
The audit committee is responsible for advising the board of directors and the fiscal council to
supervise and report to shareholders. The fiscal council and the audit committee belong to
different hierarchical positions within the organization. The fiscal council is installed by the
general meeting, a representative body of the shareholders, and autonomous because it is not
linked to the organization’s organization. The audit committee is reporting to the board
of directors (De Carvalho and Pennacchi, 2012). According to Saito and Silveira (2008),
the acceptance of both bodies would lead to greater transparency in managers’ actions
and the adoption of greater corporate governance practices, as greater control tends
to guarantee the continuity of the organization, regardless of individual or group
interests.
The fiscal council is responsible, at least to supervise the acts of the administrators and
to verify the fulfillment of their legal and statutory duties; to express an opinion on the
annual management report, including in its opinion the complementary information
deemed necessary or useful for the deliberation of the general meeting; Give an
opinion on the proposals of the management bodies to be submitted to the general
meeting regarding the modification of the capital stock, issuance of debentures or
subscription bonuses, investment plans or capital budgets, distribution of dividends,
transformation, incorporation, merger or split; report the errors, fraud or crimes they
discover to the management bodies or the general meeting and suggest useful
measures to the company; call the ordinary general meeting, if the management bodies
delay this call for more than one month, and the extraordinary, whenever serious or
urgent reasons occur, including in the agenda of the meetings the matters they
consider necessary; analyze, at least quarterly, the trial balance and other financial
statements prepared periodically by the company; and examine and opine on the
financial statements for the fiscal year. In summary, the fiscal council supervises the
administrators’ acts and the board of directors. It offers its opinion on the financial
statements examined by the external auditor and, for that, it can use the assistance of
the external auditor or other specialists to requested by the advisors and paid for by the
company (Tinoco et al., 2011).
The Fiscal Council can mitigate some crucial corporate governance problems by
separating cash-flow, voting rights and earning management. Levy Neto (2005)
believes that the Fiscal Council can be very positive for all shareholders if adequately
used according to the law. Furuta and Santos (2010) surveyed executives and experts
about Fiscal Councils, and they identified that executives emphasize the Fiscal
Council’s independence. They believe that by being independent, the Fiscal Council
protects the interests of the minority shareholders from controlling shareholders’
abuse, and the Fiscal Council helps the board of directors’ work with more tranquility.
The results found in the Trapp (2009) study suggest that the existence of a fiscal
council is related to lower levels of results management, and the more structured the
corporate governance of the company, the qualification of the fiscal council also
influences the improvement of the accounting information disclosed the external
public. Based on the literature presented, the hypothesis was elaborated:
H3. “The participation of the fiscal council in the management of the companies of B3 is
positively related to the performance.”

3. Methodological aspects
It is descriptive research for initially seeking to characterize corporate governance and the
internal mechanisms of governance, ownership structure, the board of directors and fiscal
council of listed companies in the Bovespa Mais and Bovespa Mais 2 segments of B3.
Regarding the problem approach, the research is predominantly quantitative of a relational
nature, using statistical methods (Creswell, 2010). The basis of quantitative research is the
data and collected evidence that can be quantified and measured. Regarding the means,
the research is documentary, as it analyzed the data on the valuation of the shares
composed by secondary bases, made available by the organizations that operate the
Brazilian capital market by the Brazilian Securities and Exchange Commission [Comissão
de Valores Mobiliários (CVM)]. Regarding quantitative data of a secondary nature, data
collection regarding the corporate structure, board of directors, fiscal council and
economic-financial and market data was made through the BM&FBOVESPA (2011) and
CVM (CVM. Comissão de Valores Mobilia rios, 2018) website.
The obtained data were submitted to statistical analysis as statistical support software had
StataVR 13.0 was used. The data sources used were the electronic site of B3 and CVM,
which defined the variables of Corporate Governance and economic-financial and market
data.
Companies with insufficient data for analysis and companies with status canceled on the
stock exchange were excluded, totaling 15 companies for the final sample. The period
analyzed was from 2005 to 201. The analysis refers to the information of 11 years, which
made possible a longitudinal analysis (Hair et al., 2005) and compared companies listed in
Bovespa Mais and Mais Level 2. This period’s choice is justified because the Bovespa Mais
segment was created in 2005 by B3 to receive companies to develop corporate
governance mechanisms. The research sample’s definition took into account the
companies’ adhesion period to the Bovespa Mais and Bovespa Mais 2 segments, with 15
companies selected. Table 1 shows the companies, industry, segment and year of
membership.
The variables refer to the attributes of the organizations that can be measured. According to
previous studies that present objectives similar to this study, the theoretical framework
presented served as the basis for the choice of the variables investigated. This choice
made possible the comparison with the results obtained in the previous works. The
variables were divided into three groups, namely, dependent, independent and control. To
Table 1 Companies of bovespa mais and bovespa mais 2 listed in B3

Companies Acting sector Segment Year
Nutriplant Indu stria S.A Agriculture (sugar, alcohol and cane) Bovespa Mais 2008
Biomm S.A Pharmacist and hygiene Bovespa Mais 2010
Statkraft Energia Renova veis S.A Electricity Bovespa Mais 2011
Norte C Quı́mica S.A Pharmacist and hygiene Bovespa Mais 2012
Senior Solution S.A Communication and computer science Bovespa Mais 2012
Altus Sistema de Automação S.A Machines, equip., veı́c. and parts Bovespa Mais 2 2013
Companhia de Águas do Brasil Sanitation, serv. water and gas Bovespa Mais 2013
Quality Software S.A Communication and computer science Bovespa Mais 2013
BR Home Center S.A Construction, construction Bovespa Mais 2015
Forno de Minas Alimentos S.A Foods Bovespa Mais 2015
Maestro Loc. de Veı́culos S.A Services transport and logistics Bovespa Mais 2015
tica Participações S.A
Pra Machines, equip., veı́c. and parts Bovespa Mais 2 2015
BRQ Sol. em Informa tica S.A Information technology Bovespa Mais 2016
Centro de Tec. Canavieira S.A Non-cyclic consumption/agriculture Bovespa Mais 2016
Cinesystem S.A Cyclical consumption/media/film production and broadcasting Bovespa Mais 2016
Source: Prepared by the Authors (2019)

test the influence of corporate governance mechanisms on the market value of the listed
highway concessionaires, Table 2 shows the respective variables:
To analyze the characteristics of the governance mechanisms in the highway
concessionaires’ market value using the regression with random effects with the Hausmann
test, the regression should make the relevant indicators of fixed effects with data in the
panel of according to the method and the lower models. In the fixed effects method, each
object of analysis, in this case, the firms, is treated as an unknown fixed parameter (Xavier,
2011). The models are represented by equation (1):
VM it ¼ b o þ b 1X 1it þ b 2X 2it þ . . . þ b nXnit þ ai þ « it
On what:
VM it are the dependent variables QTobin and Market-to-book (MTBook);
b o it is the intercept;
b 1X1it e b nitXnit and present the independent variables and the control variables and their
coefficients;
ai is the deviation of the performance j in relation to the general mean b o;
« it is the deviation of the value of firm i in years t, in relation to its expected performance;
After presenting the correlation matrix, we will test the research models from the equations,
which contain the indicators for analysis of fixed effects with panel data, being tested so
that it is possible to give empirical support to the research hypotheses and the analyzes.
The fixed-effects model can be estimated with the StataV R tool by the “xtreg” option “fe.”
Table 2 Summary of variables

Variables Measurement Authors
Dependent QTobin Represented by market value and the carrying amount of the company’s Silveira (2004);
current liabilities, divided by the carrying amount of the company’s current Silveira et al. (2008);
assets Peixoto (2012)
Market-to-book Expresses the market value based on the shares, divided by the value of the Benedicto et al.
(MBook) total assets (2013); Caixe and
Kruter (2013)
Independent Property Concentration investor Percentage of common shares held by other Gugler et al. (2008);
structure (QtdeaordinaryUnd) investors Caixe and Kruter
(2013); Folster et al.
(2016)
Capital spraying Percentage of common shares held by Barako et al. (2006);
(QtdeaespreferencialUnd) controlling investors O’Sullivan et al. (2008)
and Folster et al.
(2016)
Fiscal council Participation council 1 if there is a fiscal council and 0 otherwise Trapp (2009) and
(QtdemembDoCF) Folster et al. (2016)
Board Board size n. total members Michelon and
administration (QtdemembrosdoCA) Parbonetti (2010);
Independence (demdoCAind) n. of independent directors Hafsi and Turgut
Duality (dual) Binary (D = 1 if CEO is chairman and D = 0, (2013); Farooque and
otherwise) Ahulu (2015)
Control Profitability on Measured by dividing net income by average Silveira (2002);
shareholders’ equity (ROE) equity of companies Politelo et al. (2013)
Return on assets (ROA) Measured by return on assets Claessens et al.
(2002)
Assets total (Ativototal) Logarithm of total assets Silveira et al. (2008)

StataV
R vce (robust) routines were used to control the multicollinearity of the variable
residues. As it was found that there were many discrepancies between the minimum and
maximum values of the variables, the DFBeta technique was used to verify the existence of
atypical observations (outliers). Subsequently, the univariate normality of all dependent,
independent and control variables was verified. When the normality test was applied, and
asymmetry (skewness) and kurtosis (kurtosis) were verified, all results were significant.
Therefore, the null hypothesis that the data is expected (Appendix A) was rejected.
After treating the dependent variables, Table 2 provides descriptive statistics for each one.
About the MTBook, the average result after treatment was 0.11. The variation of this
indicator measured by the standard deviation is 2.26. Regarding QTobin’s variable
(QTobin). The average value of the sample is 0.10, with a standard deviation of 0.55.
Regarding the independent variables of the ownership structure, the following stand out:
concerning Qtdeaordinary (concentration of shares), the average result after treatment was
0.70. The variation of this indicator, measured by the standard deviation, is 4.01. The
variable Qtdeaespreferencial (dispersion of shares) was 0.10. The variation of this indicator,
measured by the standard deviation, is 0.25.
The independent variables of the board of directors behave as follows: concerning the
number of board members (QtdemembrosdoCA), the average result after treatment was
5.83, indicating that the boards of directors of the Bovespa Mais and Bovespa Mais 2
segment of B3 are composed, on average, of approximately six directors. The variation of
this indicator was measured by the standard deviation, which was 2.43. For the variable
number of independent members (demdoCAind), the average result was 0.63. The
variation of this indicator, measured by the standard deviation, is 0.48. For the fiscal council
variable, council fiscal (CF) (QtdemembDoCF), the mean result after treatment was 0.76.
The variation of this indicator, measured by the standard deviation, is 2.01.
Finally, the control variables are presented. For the control variable ROE (return on equity),
the average result was 0.38. This indicator’s variation, measured by the standard
deviation, is 2.26 and the minimum was 14.31. As for the variable Ativototal (company
size), the average result was 4.01. The variation of this indicator, measured by the standard
deviation, is 6.04. As for the ROA variable (return on assets), the average result was 0.05.
The variation of this indicator, measured by the standard deviation, is 0.31. Table 3 shows
the analysis of the independent variables and the control with a focus on research.
The correlation between each of the dependent variables and the rest of the independent
variables and controls was verified. The table of correlations with all variables, showing the
correlations and the degree of statistical significance between the dependent, independent
and control variables were also verified. Hair et al. (2005) describe that the association’s
strength is measured by the correlation coefficient, in which coefficients with values
between 0.41 to 0.70, 0.71 to 0.90 and 0.91 to 1.0 are considered to have moderate, high
and robust associations, respectively. The strength of the relationship between the
variables is moderate, highlighted in bold, light. There is no indication of a high or powerful
association.
4. Results and discussion

Some characteristics commonly used to describe a set of data are central tendency measures
and measures of variability or dispersion. The dependent variables’ descriptive verification
was indicated with the mean of the dependent variables and the standard deviation. After
treatment of the dependent variables, Table 3 provides the descriptive statistics for each of
them. As for MTBook, the mean post-treatment outcome was 0.11. The variation of this
indicator measured by the standard deviation is 2.26. About the variable QTobin (QTobin). The
mean value of the sample is 0.10, with a standard deviation of 0.55. Regarding the property
structure’s independent variables, it is worth noting: concerning the QtdeaesordinriasUnid

Table 3 Variables research
Variables Average SD Min Max Asymmetry Kurtose
QTobin 0.10 0.55 0.97 1.03 0.6472 0.0001

MBook 0.11 2.26 6.56 14.04 0.0000 0.0000
QtdemembrosdoCA 5.83 2.43 0 11 0.0089 0.0303
demdoCAind 0.63 0.48 0 1 0.0000 0.0001
Dual 0.12 0.33 0 1 0.0008 0.1021
QtdemembDoCF 0.76 2.01 0 6 0.0000 0.0020
QtdeaesordinriasUnid 0.70 4.01 0.12 1.43 0.0671 0.0781
QtdeaespreferenciaisUnid 0.10 0.25 0 0.97 0.0004 0.1831
ROE 0.38 2.26 14.31 2.16 0.0004 0.0007
ROA 0.05 0.31 2.02 0.18 0.0009 0.0025
Ativototal 4.01 6.04 0.49 1.95 0.0000 0.0000
(stock concentration), the mean result after treatment was 0.70. The variation of this indicator,
measured by the standard deviation, is 4.01. For the Qt variable, the average result was 0.10.
The results suggest that the fiscal council may partially replace other governance
mechanisms, such as the audit committee. In this sense, the research contributes to the
debate on the interaction between different governance mechanisms, particularly about
possible effects of substitutability or complementarity. Additionally, the evidence that
requests for installation of the fiscal council are more frequent in companies with worse
performance is in line with the revised empirical literature. It contributes to the debate on
what motivates shareholders to be more or less passive, suggesting that performance past
financial situation can be a key element to understand this phenomenon, even in
environments with full control (Carvalhal, 2012; Almeida and Rodrigues, 2016).
stomo and Girão (2019, p. 42):
The implantation process, for Criso
[. . .] of a corporate governance system in the company comprising a set of good practices has
been defended as capable of improving the company’s management, its performance, and its
relationship with the market.
Thus, the primary governance structures of organizations are “[. . .] board of directors,
executive board, advisory committees to the board of directors and fiscal council”
stomo and Girão, 2019, p. 43). The purpose of the present work is to investigate the
(Criso
researchers’ productivity in terms of temporality and number of authors, collaboration
applying Lotka’s Law using the generalized inverse power model for direct and complete
counting.
Starting from a scenario where the market is directly affected by agency conflicts, mainly
among majority and minority shareholders, uncertainty prevails for the investments’ risks.
Because of a scenario like this, governance’s role becomes essential in the partial
resolution or alleviation of these agency problems through the preservation and defense of
all shareholders’ rights. In this sense, it can be said that corporate governance is a set of
mechanisms aimed at minimizing agency problems (Souza et al., 2011).
Governance will have to play the role of a monitoring tool for the executive board to
minimize agency problems. Governance encompasses functions that involve independent
auditing, the fiscal council and the board of directors, as the main mechanisms of
governance of companies, which perform the monitoring function, contributing to the
creation of value for the company and the shareholder (Nascimento et al., 2013). Chang
et al. (2009) found evidence that better governance environments help diminish the effect of
investor sentiment. In the sense that in a safer and more transparent market, they can
provide more information to investors, diminishing investor’s effect irrationality at the time of
their decisions. Chen (2013) identified that corporate governance could influence investor

sentiment on investment decisions in the Taiwanese market, where the use of governance
mechanisms has been able to mitigate the impact of investor sentiment.
Besides Figure 1, the company code on corporate governance is designed to protect investors’
rights (Chung et al., 2010). Therefore, more compliance means more transparency in financial
information, and therefore, the interest of investors is more protected (Rizwan et al., 2016).
Concluding the above discussion, it is stated that corporate governance mitigates the agency’s
problem by restricting the entrenched management behavior, having a more significant number
of independent and fiscal advisors, thus preventing the wealth of investor’s expropriation. Thus,
the idle liquid assets would not be accumulated, affecting the company’s market value in the
articulation of preparing it to go public (Dias et al., 2020).
The code should serve as an instrument for companies to implement acceptable corporate
governance practices. The first edition was published in 1999 and later was revised and
expanded. The latest edition is the fourth edition published in 2010. Like the German
corporate governance, the code of best practice of corporate governance is also divided
into six sections, namely, ownership; board of directors; management; independent
auditing; fiscal council e; conduct and conflict of interest.
Wang et al. (2015) investigated the relationship between ownership structure and
performance of the shares of China’s non-state-owned companies that carried out IPOs on
the Shanghai and Shenzhen stock exchanges from 2002 to 2010. The results show that the
conflict between majority and minority shareholders remains the main agency problem
because of entrenchment practice, negatively affecting share performance in post-IPO
periods (Lepore et al., 2018).
Boonchuaymetta and Chuanrommanee (2013) analyzed the relationship between
ownership and performance concentration, in periods close to IPOs, at 153 IPOs on the
Thailand Stock Exchange from 2001 to 2011. The results show that, even with a high
concentration of post-IPO ownership, no influence was found on the underpricing of IPOs,
Figure 1 Relationship of variables with theoretical flow of research – property, board and
fiscal council

with most of the shares being controlled by family businesses, which prevents free
competition in the Thai market (Hanafi and Setiawan, 2018).
Finally, the literature shows that the IPO creates liquidity in the shares because they are
traded on an organized market (Stock Exchange), with daily buying and selling movements.
The IPO facilitates the company’s sale because shareholders can offer their shares to other
interested parties, i.e. they can leave the business when they think they should. In a private
company, the sale is hampered because it usually requires trading a relevant part of the
company, while in the Stock Exchange, the shareholder can sell little by little (Ullah et al.,
2019). Because it is not public, such a company makes it difficult for those interested in
buying its shares.
The hypotheses established in the theoretical framework have the objective of testing
whether H1: the participation of minority shareholders in the ownership structure in B3
companies positively affects their performance; H2: the number of independent members
on the board of directors of B3 companies positively affects their performance; H3: the audit
committee’s participation in the management of B3 companies is positively related to
performance. For this, two dependent variables were used – the MTBook or the QTobin
(QdeT). Table 3 summarizes the results obtained with the regressions and the results of the
software.
4.1 Analysis of quantitative results

The objective of this research was to describe the characteristics of the companies’
ownership structure, seeking to understand the particularities of the board of directors.
These companies’ peculiarities and the fiscal council in the companies’ market performance
are listed on the BM&FBovespa (B3, 2019) between 2010 and 2019. Table 4 below shows
the main results of the quantitative analysis of theoretical findings:
Regarding the impact of going public, several scholars point out changes in the ownership
structure, especially about the concentration of capital, at times exposed to public offerings
(Bruton et al., 2010; Gonza lez and Garcı́a-Meca, 2014). The relationship between
ownership concentration and performance, too, is a widely discussed scientific topic. The
idea emerges from the impacts that agency costs from concentration or dispersion of
ownership can have on performance. However, discussions about the relationship, positive
or negative, of ownership concentration to performance are not conclusive (Foley and
Greenwood, 2010).
In H1, even the result was rejected, as the majority shareholder has information about the
company that external investors do not have. However, as the external investor does not
have all the information, its valuation becomes more uncertain. He demands that a lower
price be paid to compensate for the risk of the investment. Therefore, the ideal time to go
public is when there is a balance in the relationship between the cost of valuation
uncertainty and the risk reduction required by investors (Chemmanaur and Fulghieri, 1999;
Henry, 2010; Schiehll et al., 2014).
The decision of a company go public is also related to the diversification of the controlling
shareholders’ investment portfolio. In a sample of all the IPOs that took place in Sweden
between 1995 and 2001, Bodnaruk et al. (2008) analyzed in detail the composition of the
portfolio of shareholders of public and private companies, concluding that less diversified
and less wealthy investors sell shares in an IPO. Table 5 highlights several studies that had
better analyze the IPO’s approaches to stock market performance.
In H2, it was accepted, as theorists proclaim that independent director’s channel valuable
resources to the organization and facilitate strategic decision-making through their
established networks and contacts with the outside environment (Abor and Biekpe, 2007).
Hearn (2011), Lin and Chuang (2011) have established a negative relationship between the

Table 4 Main results of quantitative analysis and theoretical findings
Main findings Authors who corroborated Results
H1: “The participation of minority These results are in line with the arguments Hypothesis
shareholders in the ownership structure in of Jensen and Meckling (1976) that large No accept
B3 companies positively affects their investors had better monitor managers, so
performance” the concentration of ownership can be
beneficial for corporations
H2: “The number of independent members These findings are consistent with the Hypothesis
on the board of directors of B3 companies studies of Wagner et al. (1998), Barnhart Accept
positively affects their performance” and Rosenstein (1998), Hillman et al. (2000),
Carvalhal-da-Silva and Leal (2005) and
Black et al. (2006) that the increase in the
number of independent directors is directly
related to the increase in the companies’
market value
H2: “The audit committee’s participation in The results of the regressions corroborate Hypothesis
the management of B3 companies is the studies by Trapp (2009), Lin and Liu Accept
positively related to performance” (2009) and Tinoco et al. (2011) that the fiscal
councilors and their activities generate
value for shareholders and, ultimately,
improve their market performance
proportion of independent directors on board and underpricing in support of the above

theories. By contrast, for some quality institutions by investors, board independence is seen
as a sign of good quality about positive variables (Certo, 2003; Howton et al., 2001). On the
one hand, Chahine (2004) established a quadratic relationship between the value of the
company and the percentage of external directors. Chen and Yang (2013) failed to
establish any significant association between these two variables, thus leaving room for
further research.
Besides, the company has different resources from other companies, allowing it to gain a
competitive advantage in the market. The presence of external or independent directors on
the board is expected to generate positive organizational results, as their vision of eclectic
knowledge, creative skills, innovation, more in-depth knowledge of the consumer market
and their intolerance for unethical behavior strengthens the company’s internal processes
that ultimately improve the company’s performance and extend the underpricing of the IPO
(Hillman et al., 2007; Badru et al., 2017; McGuinness et al., 2018).
Some of the corporate governance mechanisms, such as board size and independent
board members, exhibited predictive power on financial performance indicators, ROA and
QTobin. This finding agrees with Christensen et al. (2010), further concluding that a strong
independent board is one solution to agency problems by reducing cost, thereby improving
financial performance. Somewhat inconclusively, audit committee meetings’ frequency
indicates some influence on the financial performance indicator ROA but no influence on
QTobin (Crisostomo et al., 2020).
Gondrige et al. (2012) showed that the board’s size and its level of advantage are
positively-related, unlike duality and independence, which did not present any statistical
significance. Board independence impacts performance, but negatively, as independent
directors with insufficient knowledge about the business of the companies can affect the
performance. Thus, the results indicated that representatives of the controlling shareholders
largely dominate the boards, and there is evidence of low utilization of voting mechanisms
available to non-controlling shareholders. Combining the above arguments, we proceed
with the methodological analyzes.

Table 5 Theoretical contributions and studies in line with the outcome of the hypotheses
Author(s) Theme Considerations
Chemmanaur and Fulghieri (1999) Decision to make IPO – information and The ideal time to make an IPO is when there is
opening of capital a balance between the cost of uncertainty in
the valuation of the company and the risk
tolerated by investors
Lowry and Schwert (2002) Decision to make IPO – information and Number of IPO’s increases after period of
opening of capital high underpricing. More information
decreases uncertainty of new entrants
Pagano et al. (1998) Decision to make IPO – structure of industry The decision to make an IPO is related to the
and enterprise price level of the industry, the size of the
company and the age of the market (time
since foundation)
Brau et al. (2012) Decision to make IPO – company capital Interview with 984 financial directors says
structure reduction of debt level is a benefit of the IPO
Chod and Lyandres (2011) Decision to make IPO – company capital In total, 89% of emissions are primary. Money
structure raised is used for investments and debt
payments (adequacy of capital structure)
Subrahmanyam and Titman (1999) Decision to make IPO – access to capital The benefit of becoming a public company is
markets related to the size of the capital market. The
size of the capital market is related to the
regulation of minority shareholder protection
La Porta et al. (1997) Decision to make IPO – access to capital The size of the capital market is related to the
markets regulation of minority shareholder protection
Celikyurt et al. (2010) Decision to make IPO – access to capital M&A transactions grow significantly after
markets going public
Hovakimian and Hutton (2010) Decision to make IPO – grow via acquisitions IPOs facilitate acquisitions because the
company has money raised with investors, the
possibility of new fundraising in the capital
market and the possibility of paying for
acquisitions with exchange of shares
Kim and Weisbach (2008) Decision to make IPO – increase investments Resources raised at the IPO are used for
investment in research and development and
for investments in the company’s expansion
Councils made up of independent members will, according to Alves (2014), undoubtedly, in

a better position to monitor and control managers because the independent advisors can
help to reduce the agency problem and to monitor and control the opportunistic behavior of
the manager because of his independence and experience and their prestige because they
are concerned about maintaining their reputation on the external labor market. In this sense,
Siam et al. (2014) present characteristics similar to the subject and mention that greater
independence of the council results in a useful monitoring framework.
In H3, it was accepted, the fiscal council and audit committee’s do board participation in the
management of companies is positively related to performance (Criso stomo and Freire, 2015).
PwC (2007) discusses the strengths and weaknesses of adopting a powered fiscal council.
According to this study, opponents argue that the fiscal council is an institutional tool to exert
shareholders’ inspection does not serve the purpose of the audit committee to be a
management instrument of the board of directors. Also, the fiscal council has functions and
duties different from those predicted for the audit committee, such as providing opinions on
proposals to change the company’s capital, issue debentures, investment plans or capital
budgets, something that can lead to loss of focus on specific attributions of the Fiscal Council.
The Fiscal Council can mitigate some critical corporate governance problems by separating
cash flow, voting rights and earning management. Levy Neto (2005) believes that the Fiscal
Council can be very positive for all shareholders if adequately used according to the law. The

benefits of the Fiscal Council to shareholders come in forms aside from its monitoring function.
We believe that the Fiscal Council can reduce earnings management and improve a firm’s
performance. Based on these assumptions, this research aims to investigate the impact of the
existence of a Fiscal Council in a firm’s performance and the quality of the firm’s reports.
Tinoco et al. (2011) show that the members of Fiscal Councils of Brazilian public firms are, in
fact, aware of their responsibilities, and those practices can generate value for the
shareholders.
According to Tinoco et al. (2011), many Brazilian companies that issue American
Depositary Receipt (ADRs) still prefer to comply with the Sarbanes–Oxley Act (SOX)
requirements and not install the powered fiscal council. This preference is most likely
because of a market-driven, strategic issue of making their stocks available in the US
market, as these stocks’ acquirer is more familiar with the audit committee than any other
monitoring body (Cuomo et al., 2016). Furuta and Santos (2010) investigated executives’
perspectives from companies operating in Brazil and issuing ADRs and market analysts
concerning the formation of an audit committee or a powered fiscal council. The results
indicated no consensus that the fiscal council is more adaptable than the audit committee
to the Brazilian business environment if these bodies’ functions are different and if the costs
associated with committee formation are relevant.
Empirical evidence shows institutional investors’ role as monitors management (Gillan and
Starks, 2007; Guercio and Hawkins, 1999). The monitoring of these investors may have a
substitute effect to the defendant by the shareholders when requesting the CF. Smith (1996)
finds a relationship between the presence of institutional and activist initiatives. In Brazil,
Punsuvo et al. (2007) find a negative relationship between pension and the quality of
governance, and Oliveira et al. (2012) find no significant relationship. The authors mention
the high participation and possible alignment to the controllers as explanations. Sonza and
Granzotto (2018) find a negative relationship between the size of Brazilian pension funds
participation and performance, showing that even they do not seem to play management
monitors well. Therefore, it is not possible to provide a signal for institutions’ participation in
the CF installation request.
The fiscal council and the audit committee occupy different hierarchical positions in the
organization: the second is subordinate to the board of directors, preferably consisting of
independent members. The general meeting sets up the first, a body that represents
controlling shareholders and minority shareholders. Unlike the committee, the fiscal council
is autonomous and is not linked to any organization’s body, and it must report to the
shareholders directly at the meetings.
The bodies also have differences in their functions and duties. Audit committees are
delegated with activities inherent to the “management” function, i.e. an advisory mechanism
made available to the board of directors to fulfill its tasks. Among the fiscal council’s legal
attributions, the possibility of exercising any activity inherent to management is excluded.
The council activities are carried out according to the role of comprehensive and
unrestricted inspection of managers’ legal and statutory duties, at shareholders’ request, as
a decision of the general meeting. In this way, it is an institutional mechanism to exert the
shareholders’ right to control the executive’s decision (PwC, 2007).
The Fiscal Council, when well-organized, can protect minority shareholders’ interests. Black
et al. (2010) identified that only 53% of Brazilian firms’ Fiscal Councils include a member
with accounting expertize. This lack of expertize could affect the benefits the firm receives
from adopting a Fiscal Council. It is also important to note a member with corporate finance
expertize in the Fiscal Council. Cavenage (2006) and Bulgarelli (1998) point out the
importance of an adequate formation of the Fiscal Council; only with a proper formation can
the benefits of installing this body be practical. Its performance, however, is not limited to
protecting the rights of the shareholders.

After analyzing the correlations, the research models were tested based on the equations
containing the indicators for the analysis of fixed effects with panel data so that it is possible
to give empirical support to the research hypotheses and analyzes. The model with fixed
effects was estimated with the Stata tool by the command “xtreg” option “fe” (regression
with fixed effect) and “re” (regression with random effect) using the routines “vce (robust)”
to calculate robust standard deviations violations of distributions. Stata was also used to
calculate heteroscedasticity to understand the behavior of individual variables with each
other. On the other hand, the Hausmann test was used to check the multiculionarity/
endogeneity of the results between the variables and random. After the Hausmann test, the
data showed the regression data analysis with random effects (“re”) with a linear estimator:
generalized least squares.
About the variable number of independent members of the board of directors, it presented
a positive and significant coefficient in both the QTobin ( b demdo = 0.09 p < 0.05) and in
the MTBook ( b demdoCAind = 0.13 p < 0.05). These results present evidence that
corroborates H2 and argues that the number of independent members on the board of
directors positively influences their market performance. It is estimated that an additional
independent advisor’s inclusion implies a gain of approximately 9% in Qtobin and 13% in
the MTBook.
Similarly to the previous variable, the third variable related to the participation of the
fiscal council presented a positive and significant coefficient in both dependent
variables, that is, both Qtobin ( b demdoCAind = 0.92 p < 0.10) and MTBook
( b demdoCAind = 0.15 p < 0.01). These results also provide evidence that allows us to
corroborate H3 and argue that the fiscal council’s participation in the management of
the companies is positively related to its market performance. When the company has a
fiscal council, approximately 4% in QTobin and 9% in the MTBook are estimated.
The regressions results corroborate the studies of Trapp (2009) and Tinoco et al. (2011) that
fiscal councilors and their activities generate shareholder value and, ultimately, improve
their market performance. In Table 6, it can be observed that the variable relative to minority
investors was not statistically significant in both QTobin ( b QtdeaespreferenciaisUnid =
1.98 p > 0.1) and in MTBook ( b QtdeaespreferenciaisUnid = 1.78, p > 0, 1). These
results do not present evidence that the participation of minority shareholders in the
Table 6 Summary of results regression

Var. dep. QdeT Var. dep. MTBook
Coef. b t Coef. b t
Variables ‘‘re’’ – (regression random effect) ‘‘re’’ – (regression random effect)
QtdeaespreferenciaisUnid 1.98 1.22 1.78 1.18

QtdeaesordinriasUnid 2.24 1.08 5.62 2.12

demdoCAind 0.092 0.88 0.015 0.29

QtdemembDoCF 0.040 0.36 0.010 0.12
QtdemembrosdoCA 0.097 0.43 0.098 0.46

Dual 0.067 0.12 0.024 0.23

ROE 0.033 0.79 0.034 0.82
ROA 0.176 0.42 0.178 0.49
Ativototal 1.13 0.70 2.25 1.09
_cons 0.2947263 1.09 0.3293211 1,18
sigma_u 1.8105278 – 1.9476877 –
sigma_e 2.53010532 – 2.1427073 –
rho 0.85938834 – 0.75243069 –
Obs 55 – 55 –
No of companies 15 – 15 –
Note: , and indicate statistical significance at the 1, 5 and 10% level, respectively
Source: Authors’ data (2019)

ownership structure of companies does not significantly influence their market performance.
Thus, H1 cannot be corroborated.
In relation to the variable fiscal council (audit and analysis of fiscal statements), it presented a
positive and significant coefficient in both the QTobin (b QtdemembDoCF = 0.04 p < 0.05) and
in the MTBook (b QtdemembDoCF = 0.01 p < 0.01). These results present evidence that
corroborates H3 and argues that the number of independent members on the board of directors
positively influences their market performance. It is estimated that an additional independent
advisor’s inclusion implies a gain of approximately 9% in QTobin and 5% in the MTBook.
Based on H3, the view of accounting information on the Fiscal Council’s monitoring, it is
expected that the application of corporate governance principles will promote information
with more remarkable persistence. This persistence will have repercussions on financial
markets to encourage investment. At the same time, it is predicted to ensure a higher
quality of financial information. Thus, under the mechanisms proposed by corporate
governance, they are expected to reduce agency costs, limit opportunistic management
behavior, lead to better quality and reliability of the information and increase the company
value (Shiri et al., 2012).
A good Fiscal Council can help improve the firm’s performance, and an active Fiscal
Council can result in better firm corporate governance. An active Fiscal Council is
associated with a higher ROE, Tobin’s Q and dividend payout, smaller betas, debt to equity
ratios, lower costs of debt financing and it restricts earnings management practice. These
benefits can be associated with more protection and value for the company’s shareholders.
As far as auditing is concerned, the law included management requirements to report on
external controls’ effectiveness, such as the board of auditors and external audit to give an
opinion on management assertions’ adequacy. Generating greater internal control in
accounting policies critical to the overall picture presented by the financial statements; the
prohibition of joint provision of certain services related to an internal audit that may favor
some agents. The strengthening of the board of directors’ position in terms of powers of
investigation, resources and the appointment of the CEO and Chairman could keep the
board of auditors active in the company’s operations (Fairchild et al., 2019).
The IBGC (2015) defines the supervisory board as a Brazilian institution, created to
complement the directors’ supervisory activities. It is an independent control body for the
owners, whether majority or minority. The Fiscal Council reports to the shareholders of its
inspection of the Executive Board’s acts, the Board of Directors and the financial
statements. Some of these activities are similar to those of the Audit Committee (Wu, 2012).
According to Tipuric et al. (2009), shareholders resort to audited financial statements to be
sure that management is appropriately discharging its responsibility for running the
company. However, they warn of the possible existence of conflicts of interest between
management and users of the financial statements. There is a concern that their data is
intentionally biased in favor of the administration. Atkinson et al. (2000) explain that through
the intelligent use of information focusing on costs, activities and organizational processes,
management accounting creates value for companies by producing “personalized”
information using techniques such as activity-based costing systems, operational control
systems and the balanced scorecard.
On the other hand, Iskandar-Datta and Jia (2013) have discovered that shareholder
protection is positively related to holding money because entrenched managers are not
required to disburse in the absence of shareholder protection liquidity between
shareholders and them invest it quickly in unprofitable projects (Tran, 2020). The limited
literature above is inconclusive on the impact of external governance on operational
liquidity. However, it is expected that the improvement of the level of external governance
through the fiscal council mitigating the agency’s problem, as in the presence of strong
external governance, shareholders may force management to disaggregate excess liquid

assets, resulting in operational liquidity being negatively affected (Khan and Rehman,
2020).
These findings are consistent with the studies by Barnhart and Rosenstein (1998), Hillman
et al. (2000) and Black et al. (2006) that the increase in the number of independent directors
is directly related to the increase in the market value of companies. An independent board
assumes good governance practice, tends to mitigate conflicts among shareholders and
plays an essential role in raising the reputation of the company and its legitimacy, as the
board is responsible for evaluating the board and, if it is in the best interest of the
shareholders, replace it (Wang et al., 2019).
As a managerial contribution, the research allows us to understand a Brazilian market
phenomenon that became especially relevant after the changes introduced by Inst. CVM
561/2015 and remote voting (CVM. Comissão de Valores Mobilia rios, 2015). The bulletins
submitted to the shareholders for voting must include requesting the installation of the CF.
The process facilitates obtaining the votes necessary for the installation of the CF, but the
bulletin does not allow the suggestion of names for the composition of the body (Lin and
Liu, 2009; Sonza and Granzotto, 2018).
In Brazil, minority shareholders, when requesting the CF’s installation, influence the firm’s
governance structure and communicate to the company demand for more excellent
monitoring. This movement is, therefore, a manifestation of activism. This research aims to
investigate the characteristics related to the request for the installation of fiscal councils. As
the CF has an opinionative and non-deliberative function, observing reports and ex-post
facts, special attention is given to characteristics representing companies’ monitoring
function, whether internal or external (Silveira et al., 2013). The literature suggests that
features such as independence, size and frequency of council meetings management are
related to decision-making by this body, which can influence the quality of monitoring
(Anderson et al., 2004; Hermalin and Weisbach, 2001; Vafeas, 2000). External monitoring is
observed through the quality of independent auditing and coverage by market analysts
(Adams and Neururer, 2019; DeFond et al., 2002).
Ownership structure and performance are also investigated. The concentration of control,
characteristic of the Brazilian scenario, represents a greater incentive for monitoring by
large shareholders, which is positive. However, it can discourage minority shareholders’
initiatives that see little chance of their accepted proposals (Leal and Carvalhal da Silva,
2006). The shareholders’ agreements are another characteristic that deserves investigation,
as the articulation of control that it provides can have adverse effects on activism (Gelman
et al., 2015). In international literature, institutional investors are often recognized as
important management monitors (Gillan and Starks, 2000). In Brazil, Punsuvo et al. (2007)
and Sonza and Granzotto (2018) find a negative relationship between the participation of
pension funds and, respectively, the quality of governance and the performance of investee
companies (Butt, 2019).
Therefore, the potential increased evidence on private investor programs (Otto and Ziegler,
2008) could have implications for international development agencies. With the increase in
impact assessments, external governance mechanisms would put the evidence map in
place (Teding van Berkhout and Malouff, 2016; O’Leary et al., 2017). Consequently, with the
increased use of these tools, funding agencies will have more information to bridge the
development gap.
There is a growing recognition of the critical role of GC mechanisms in increasing the quality
of financial reporting, aligning management interests with those of shareholders, and
reducing agency and information asymmetry problems (Juhmani, 2017). However, for
investors, analysts and other users, our results confirm the concern that compliance with
mandatory disclosure requirements for accounting information and, more generally, the
implementation of auditing and audit may increase the control, interpretation and

comparability of financial statements of companies, shareholders and stakeholders (Mnif
and Borgi, 2020).
5. Final remarks
In this research, from the perspective of agency theory, we sought to align and approximate
complementary themes: corporate governance and its internal mechanisms. This study’s
objective was to analyze characteristics of internal governance mechanisms of the
companies listed in the Bovespa Mais and Bovespa Mais 2 of B3 and their influence on the
market performance of these companies in the period from 2008 to 2016. Because large
investors monitor the managers better, the concentration of ownership can be beneficial to
corporations’ evaluation by reducing interest conflicts (Jensen and Meckling, 1976). The
reduction of conflicts of interest results in an increase in shareholder value. This type of
ownership facilitates the distinction between positive and negative effects due to the
absence of separation of ownership and control (Morck et al., 1988).
While many studies speak of council independence having a marginal impact on company
performance, its effect is from significantly modest institutions. The findings obtained by the
results of Zattoni et al. (2017) increase our understanding of the board’s rule of
independence in an IPO context and further support the view that the contribution of non-
executive directors, councils to board functions are incorporated, making clear the
understanding of corporate governance relationships and the company’s financial
performance (Pasaribu, 2017).
Competitiveness and the need for growth lead firms to seek external financing. The capital
market is an essential source of such financing and plays an essential role in the growth and
economic advancement, especially in developing economies such as Brazil and other
competitive markets (Brito and Gartner, 2015; Steffen and Zanini, 2012; Gaur et al., 2015).
In this sense, the process of going public is a significant decision in the strategic context.
Publicly traded companies have access to the alternates that the capital market provides
that are not available to privately traded companies and use their shares as currency to
acquire other companies (PWC, 2017; Garcı́a-Meca and Sa nchez-Ballesta, 2011). Among
the benefits of IPO are access to new credit markets, bargaining power with banks, liquidity
and portfolio diversification (Westphal and Zajac, 2013; Braam et al., 2016).
All benefits mentioned above encourage other studies in international business and
corporate governance to refine and extend these insights so that we can begin to develop a
truly global perspective on how the governance mechanism influences company-level
results within a situated context. As the findings of Bell et al. (2013) on the foreign listed
IPOs in European countries, e.g. London, presents other contexts in which companies,
investors and stakeholders face types of information asymmetries and transaction costs,
being able to discover new standardized changes in corporate governance and suggest
problems that affect companies around the world.
Regarding the specific objective of “linking market performance to internal corporate
governance mechanisms,” this study was able to contribute to the advancement of
knowledge on the subject, expanding the understanding of the presence and influence of
minority investors in companies in the sector – Bovespa Mais and Bovespa Mais 2 of B3.
The statistical result showed that the presence of minority investors does not significantly
affect companies’ market performance. However, Cuervo-Cazurra et al. (2019) show that
agency theory applies when the subsidiary’s decision rights are “borrowed” from
headquarters, while the resource dependency theory applies when the subsidiary “owns”
its decision rights, primarily when corporate IPOs occur. Cormier et al. (2014), also
explaining the analysis of subsidiary developments, as the agency appears to apply earlier
in the subsidiary’s evolution, resource dependency seems to apply later in the evolution.

For Coombes and Watson (2000), McKinsey, more than 200 institutional investors, has
shown that its governance structure largely determines its investment decision. The
ownership structure is concentrated to contribute to decision-making associated with the
signaling value with the legal environment around the country of origin. Therefore, it
interfered with shareholder independence and impacted companies’ success in the IPO
(Gillan and Starks, 2003).
Through the conceptual analysis, elements such as separation of ownership and control,
agency problems, monitoring mechanisms, rights and responsibilities, aspects of the
corporation’s structure and other stakeholders’ involvement (Dai et al., 2015). In terms of
functions, it is essential to ensure the return on investment, minimize conflicts, align interests,
improve performance, monitoring, minimize risk, transparency, efficiency and effectiveness
and stewardship function. As a process, GC is reflected in models and mechanisms to ensure
effective decision-making, development of monitoring practices and efficiency in the allocation
of funds to open IPOs of Brazilian companies (Estape-Dubreuil and Torreguitart-Mirada,
2015). Similarly, as the characteristics were identified, the functions were identified according
to GC definitions. Thus, both theoretical and empirical articles have as a primary concern, the
shareholder, through the creation of value, a guarantee of return, minimization of risk,
improvement in performance and optimization of resources, based on the article Shleifer and
Vishny (1997).
The results obtained at work indicate that the companies that went public were investing
significantly in their growth and increasing their indebtedness. The IPO became an option to
readjust its capital structure and get new funds to continue investing and growing.
Additionally, the companies that started trading their shares presented a higher profitability
level, enabling more significant value of the company by investors and took advantage of a
window of opportunity from the market to make their IPO (market timing).
Based on the research’s focus and incentive, a predominance of the agency theory’s
aspects was identified, based on conflicts between management and control. However, the
everyday use of other types of conflicts (among shareholders, creditors and management/
shareholder) is highlighted (Spira and Bender, 2004). Besides, we identified a growth in the
research focused on the analysis of integration, among other theories, such as
stakeholders, stewardship and resource dependence for the evolution of the area of GC. In
this perspective, our research’s main contributions are concentrated in detriment to the
future research tip of the authors Kreuzberg and Vicente (2019).
In this study, it was possible to broaden the understanding of independent members’
presence on the board of directors of the Bovespa Mais and Bovespa Mais 2 segments of B3.
The statistical result showed that independent members of the board of directors contribute
positively to market value. The study showed that independent board members play an
essential role in increasing its reputation and legitimacy because of its connections with the
various stakeholders (Funchal and Monte-Mor, 2016). Hence, they are considered sources of
resources for organizations (Hillman et al., 2000). Bhagat and Black (1999) found that boards
of American firms, composed of a majority of independent members, behaved differently from
those with a predominance of internal members.
It was also possible to broaden the understanding of the participation of the companies’
fiscal council. The results indicate that the fiscal council’s participation contributes positively
to the companies’ market performance, which allows inferring that the market recognizes
that tax advisers generate value to the shareholders (Andres et al., 2011). The fiscal council
has two links, namely, with the shareholders that indicated it and with the company; to the
former a bond of trust, of defense of interests; the second, fulfilling its functions with the limit
in the social interest (Bulgarelli, 1998; Renneboog and Szilagyi, 2011). According to this
author, the fiscal council appears as one of the forms of control over the administration
because of the functional and systematic aspect, covering the accounts and the

management or only the accounts (Guimaraes et al., 2018). Therefore, the fiscal council’s
powers are continually exercising oversight over the company’s management, regarding
the accounts and the regularity of the management acts, accounting to the shareholders to
vote knowingly at the meetings (Fontes-Filho and Picolin, 2008; Bortolon et al., 2019).
Thus, this article also suggests exploring the combinations of internal and external
governance mechanisms to search for models that optimize good corporate management.
The Fiscal Council is a supervisory organ, totally independent of the firm, the board of
directors, the management team and external auditors. The independence is a fundamental
characteristic because it can act with more freedom than an Audit Committee, which it is
attached to and nominated by a board of directors. Although there are similarities among
the competencies needed by a member of a Fiscal Council and an Audit Committee, the
Fiscal Council is not equivalent to an Audit Committee as contemplated by the Securities
Exchange Act and requirements of the SOX Act of 2002 because of the independence of
the Fiscal Council (Cuomo et al., 2016).
Interactions like those proposed here can be found in McCann and Ackrill (2015) works and
Guo et al. (2015). Even so, the findings, as mentioned earlier, may make sense for developed
or emerging countries with different legal systems than the Brazilian system. As Armitage et al.
(2017) mentioned, each country’s characteristics should guide the most appropriate
arrangements for the development of governance. Bringing up the Brazilian characteristics
and understanding the relationships between internal and external mechanisms is still an
unexplored field and of relevant academic and practical understanding.
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About the authors

Francisco Elder Escossio de Barros He holds a degree in accounting sciences (2003) and a
specialization in Human Resources Management (2006) from Vale do Acarau State
University. Master in Business Administration (2017) from the University of Vale do Itajaı́, I
teach in the undergraduate subjects of Accounting, Accounting and Costs and Financial
and Budget Management at Luciano Feijão Faculty and in the specialization of the
Executive Institute. I am the Financial Administrative Manager of the Visconde de Sabo ia
Family Health Training School.
Ruan Carlos dos Santos Doctorate of Administration from UNIVALI; Master in Business
Administration from UNIVALI. Specialist in Teaching Methodology of Philosophy and
Sociology by FCV. Specialist in Controlling and Corporate Finance – FGV. Specialist in
Business Management from FAPAG. Specialist in Higher Methodology from UNISOCIESC.
Bachelor’s degree in Philosophy and Social Sciences from FAERPI. Bachelor’s in
Administration from UFSC. Bachelor of Theology from FACASC. Bachelor of Philosophy
from UNISUL. Researcher in the Strategy and Performance Studies Group (GEEP) of
CNPQ/UNIVALI. Reviewer of the RIAE and FACES Periodical contributed in the evaluation
of event article EnEPQ, SemeAD and ENGEMA. Ruan Carlos dos Santos is the
corresponding author and can be contacted at: ruan_santos1984@hotmail.com
Lidinei Éder Orso Graduated in Accounting Sciences from URI – Integrated Regional
University of Alto Uruguay and the Missions (2005), “lato sensu” postgraduate degree

Executive MBA in Finance from Meridional University IMED/ICSEC (2010) and MSc in
Business Administration from UNIVALI – Universidade do Vale of Itajaı́ (2018). He is a
member of the Strategy and Performance Studies Group (GEEP).
Antonia Ma rcia Rodrigues Sousa Professor Adjunct at the Federal University of Ceará –
UFC – Campus – Sobral, Economic Sciences Course. PhD in Business Administration from
the University of Fortaleza – UNIFOR; Master in Administration from the Federal University of
Ceará – UFC; Specialization in Human Resource Management from the State University
Vale do Acarau – UVA; Specialization in Institutional Psycho-pedagogy from Gama Filho
University. Degree in Administration from Universidade Estadual Vale do Acaraú-UVA;
Degree in Literature from Universidade Estadual Vale do Acaraú-UVA. Invited professor of
the Graduate Program in Border Studies at the Federal University of Mato Grosso do Sul,
Campus do Pantanal, (PPGEF/UFMS/CPAN). Subjects: General Theory of Administration,
Logistics, Operations Management and Logistics, Strategic Planning, Entrepreneurship,
Human Resources, Research Methodology, Market Research and Projects. Researcher in
the areas of: Intention, behavior and entrepreneurial attitude; Sustainability, Innovation,
Local Development, Solidarity Enterprises, Environmental Management and Reverse
Logistics. Evaluator of ENANPAD, EGEPE, SEMEAD, ENGEMA and evaluator of the
magazines RECADM, REGEPE. Leader of Theme 14 – EGEPE – Emerging Topics.
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The evolution of corporate governance and

agency control: the effectiveness of

Abstract Francisco Elder Escossio

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2.2 Corporate governance and initial public offering

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2.3 Mechanisms of corporate governance

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Table 1 Companies of bovespa mais and bovespa mais 2 listed in B3

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VM it ¼ b o þ b 1X 1it þ b 2X 2it þ . . . þ b nXnit þ ai þ « it

Table 2 Summary of variables

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4. Results and discussion

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QTobin 0.10 0.55 0.97 1.03 0.6472 0.0001

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4.1 Analysis of quantitative results

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proportion of independent directors on board and underpricing in support of the above

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Councils made up of independent members will, according to Alves (2014), undoubtedly, in

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Table 6 Summary of results regression

QtdeaespreferenciaisUnid 1.98 1.22 1.78 1.18

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BM&FBOVESPA (2018), “Regulamento do bovespa mais”, Disponı́vel em: www.bmfbovespa.com.br/

Bona Sanchez, C., Pérez Alema

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Chemmanaur, T. and Fulghieri, P. (1999), “A theory of going-public decision”, Review of Financial

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Creswell, J.W. (2010), Projeto de Pesquisa, Porto Alegre: Artmed.

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About the authors