Improved Corporate Governance: Market Reaction and Liquidity Implications

We study the market price reaction and liquidity impact that firms experience when they are incorporated into the differentiated corporate governance listing segments of the Sao Paulo Stock Exchange. The Brazilian market is of special interest since it allows us to analyze the effect of improved governance while keeping the market microstructure unchanged. The market price reaction is positive and significant when a firm announces its decision to commit to greater transparency and minority shareholder protection. We also find that shares with voting rights experience a stronger price reaction than non-voting shares.