Premium
Regulatory Dualism as an Alternative Trust‐Enhancing Mechanism for Dividends and Debt: Evidence from Brazil *
Author(s) -
Lozano María Belén,
LópezIturriaga Félix J.,
BrazBezerra Victor Hugo
Publication year - 2021
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12259
Subject(s) - leverage (statistics) , dividend , corporate governance , business , debt , agency cost , mechanism (biology) , agency (philosophy) , monetary economics , shareholder , accounting , financial system , economics , finance , philosophy , epistemology , machine learning , computer science
We test whether a market‐level corporate governance reform in Brazil influences the behavior of firms. To do so, we first verify whether the Novo Mercado (NM)—the segment applying more stringent corporate governance practices—impacts specific firms’ financial characteristics. We also investigate if it impacts firms’ dividends and leverage, two well‐known mechanisms for mitigating agency problems. Results show the NM impacts many firms’ characteristics and reduces firms’ dividends and leverage. We thus claim that market‐level reform may be an effective trust‐enhancing mechanism and may improve minority investor protection, thus providing evidence that a country's institutional setting can evolve over time.