Sovereign rating, corporate governance and firm performance: evidences from Brazil
Abstract
This paper analyzed the impacts of sovereign rating and corporate governance on the performance of Brazilian companies. We used a panel data regression in a sample of 671 non-financial listed companies in the period from 2010 to 2017. The firm's performance was measured by the return on assets and Tobin's Q. The Corporate Governance variables were analyzed separately and by building two indices - IGOV1 and IGOV2 - the first focused on the power of influence of the controllers in the board of directors and the second that measured the power of entrenchment of the CEOs. We found that in periods of better sovereign rating in Brazil, companies perform better. The firms performed better when they have a higher proportion of independent and professional directors, and when one of the four largest audit firms in the world (BIG4) audit their financial reports. However, when the CEO is also the chairman of the board and when there is a greater proportion of directors elected by the controlling shareholder, the companies’ performance significantly decrease. The study corroborated the literature by providing evidence that the sovereign rating has a positive relationship with the firm performance, and can be considered as an indicator of the performance and value of companies in the absence of governance variables. In addition to showing that the reduction of the controlling shareholder power on the board and the entrenchment power of the managers can increase the companies’ value and align the managerial actions with shareholders’ interests.
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