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One of the most significant changes regarding the adoption of better corporate governance was the creation of special trading segments, which impose tighter disclosure rules and listing requirements. Most literature on the special trading segments focused on the European markets. Not much is known, however, about the Brazilian “Novo Mercado” (NM). While most European new markets have failed to attract IPOs and investors, NM has grown fast and reached 35% of the total number of listed companies and 57% of the market capitalization of the Sao Paulo stock exchange. Despite its success, no research has examined whether firms that list on NM really improve their corporate governance practices. Further, there is no empirical evidence whether there is a reward for companies that list on NM without improving governance practices. This paper addresses this question by investigating the stock market reaction to the listing on NM without improving governance practices. We provide evidence that firms that list on NM and improve governance practices earn positive abnormal returns, have higher liquidity and lower volatility. On the other hand, firms that list on NM without improving governance practices do not earn positive returns, but are rewarded with higher liquidity and lower volatility.

Migration to Novo Mercado: Does it really mean improvement of corporate governance practices?