By FERNANDO NOGUEIRA DA COSTA*
Those who are aware of foreign, institutional and family control of the Brazilian stock market avoid minority participation as an individual shareholder.
Ana Carolina Rodrigues demonstrates the magnitude of the problem in Brazil of controlling shareholders of public limited companies using their power to obtain personal advantages to the detriment of minority shareholders.[1] A survey analyzed control sale operations in several countries and revealed that in the country the private benefits of control reached 65% of the equity value. This equity value, the highest among all the countries analyzed, indicated that share control here is associated with the possibility of extracting private benefits.
Some examples of these benefits include transactions with related parties. They conduct business with companies or individuals linked to the controlling shareholders themselves, under advantageous conditions, diverting resources from the company.
Controllers grant themselves and their associates salaries, bonuses, and other benefits that are disproportionate to their roles in the company. They use company resources, such as real estate, cars, and other assets, for their own benefit.
The high concentration of share capital in Brazil facilitates the extraction of these private benefits. Therefore, monitoring and controlling the actions of controlling shareholders is more difficult.
In 1996, on average, 74% of the voting capital of 203 of the 325 companies analyzed was concentrated in the hands of a single shareholder. In the 122 companies in which control was not held by a single shareholder, the largest shareholder held, on average, 32% of the voting capital.
Considering the total sample, the largest shareholder held, on average, 58% of the voting capital; the three largest shareholders held 78% of the voting capital; and the five largest shareholders held 82% of the shares with voting rights.
Furthermore, only 11% of the sample, 35 companies, did not adopt the practice of selling shares without voting rights. According to this research, the capital of the companies analyzed was composed, on average, of 54% of common shares with voting rights and 46% of preferred shares without voting rights. These shares generally functioned as a mechanism to separate control and ownership.
The persistence of this situation contributes to the distrust of minority investors and their low participation in the Brazilian stock market. The perception that share control is used to benefit controlling shareholders, to the detriment of minority shareholders, inhibits investment and perpetuates the concentration of capital.
The creation of separate listing segments on BM&FBovespa, especially the Novo Mercado, required the adoption of corporate governance practices to reduce problems related to the extraction of private benefits. Changing corporate culture and raising shareholder awareness of the importance of ethics and transparency are essential to ensuring the protection of minority shareholders and the development of a capital market that is more suited to its massification, as in the US.
With the creation of special listing segments on BM&FBovespa, a movement towards the dispersion of companies' capital structures gained more prominence. This occurred in companies listed on the Novo Mercado.
According to the research data cited by Rodrigues (2012), 65 of the 92 (approximately 71%) of these listed companies did not have majority control, understood as the shareholder, or group of shareholders aligned through a shareholders' agreement, holding more than 50% of the shares with voting rights. In these 65 companies, the largest shareholders held, on average, 26% of the shares; the three largest, approximately 47% of the shares; and the 5 largest, 55% of the shares. This scenario of relative shareholding dispersion, however, did not predominate in the other listing segments of BM&FBovespa.
Given these data, two trends emerged: the concentration of Initial Public Offerings (IPOs) in the Novo Mercado and the greater levels of shareholder dispersion in this listing segment.
The profile of minority shareholders in Brazil is diverse, but historically marked by the presence of institutional and foreign investors. Small individual investors had a more timid participation and were marked by episodes of euphoria and panic, as in crash of 1971.
Institutional investors, such as pension funds and insurance companies, and foreign investors have begun to play a greater role in the Brazilian capital market. This participation has been driven by the financial opening of the Brazilian market, the privatization of state-owned companies, the potential for appreciation of stock markets and the international diversification of portfolios.
According to 2024 data, foreign investors hold the highest levels of participation (54%) in the stock market, followed by institutional investors (26%), then individuals (15%), financial institutions (4%) and others (1%).
Given the opportunities offered by the external opening, foreign investors acquire more shares in public offerings. The Brazilian economy is becoming increasingly denationalized.
The participation of small individual investors is still a problem for the Brazilian capital market. This is due to several factors, including the preference for conservative investments in fixed income and the real estate market.
It is not only motivated by inflationary memory and the search for security and liquidity. Those who are aware of foreign, institutional and family control of the Brazilian stock market avoid minority participation as individual shareholders.
*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/4dvKtBb]
Note
[1] Scientia Iuris, Londrina, v.16, n.2, p.107-128, Dec.2012.
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