Different levels of corporate governance and the Ohlson valuation framework: The case of Brazil

Abstract

We examine whether Brazilian companies with enhanced corporate governance levels have higher market values according to the model of Ohlson (1995), modified to include variables such as governance level, type of control and shareholding structure. This study produces empirical results based on information taken from the Economática® and Brazilian Securities Commission (CVM) databases, in the period from 2004 to 2010. Multiple linear regressions on panel data is used to analyze a sample of 90 firms through 630 observations. The findings indicate that the addition of governance measures to the model increased its explanatory power, suggesting that nonfinancial information about governance practices and ownership structure also can explain the market value of stocks. The results also indicate that firms with shares traded on the Level 2 and New Market trading segments of the BM&FBovespa, which require enhanced governance practices, are important signals of good governance and consequently increase firms’ market value. The type of control was also positively related to the market value, suggesting that firms under family control and government control are more valuable than companies without concentrated control.