The influence of private equity in the governance of Brazilian companies

Abstract

The private equity (PE) investors usually seek opportunities in the target companies in order to earn high returns. One opportunity explored by PEs is the potential that the company has to improve its governance and provide a better structure for the investor, which results in the generation of shareholder value and improve market value. For this, PE enhances the adoption of good corporate governance practices with the goal of creating value for their investment. This study explores how PE improves the governance of target companies in Brazil. The quality of corporate governance is measured by a firm-level corporate governance index, by cross-listing shares in the U.S., and by listing on New Market, a special governance segment in Brazil. We estimate different panel regression and probit models to analyse the relation between PE and governance. We also test different governance metric as dependent variables and use various firm characteristics as control variables. Our results show a positive influence of PE in improving corporate governance in Brazil.