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Corporate Governance, Valuation, and Performance: Evidence from a Voluntary Market Reform in Brazil


  • Marcus V. Braga-Alves,

    1. Marcus V. Braga-Alves is an Assistant Professor in the College of Business Administration at Marquette University, Milwaukee, WI.
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  • Kuldeep Shastri

    1. Kuldeep Shastri was the Roger S. Ahlbrandt Sr. Endowed Chair in Finance in the Katz Graduate School of Business at University of Pittsburgh, Pittsburgh, PA. He passed away on April 19, 2010. Kuldeep was a recognized scholar, a great mentor, and a friend to many faculty, staff, and students. He will be missed by all who knew him.
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  • The authors wish to thank Michael Alderson, Matteo Arena, Leonce Bargeron, Brian Betker, Thomas Boulton, Peter Brous, Bidisha Chakrabarty, Vinay Datar, Michaël Dewally, Kenneth Lehn, Gershon Mandelker, Rogério Marques, Matthew Morey, Sarah Peck, Fiona Robertson, Frederik Schlingemann, Mira Straska, Shawn Thomas, Greg Waller, Chad Zutter, and the anonymous referee for valuable comments. Any remaining errors or omissions remain the responsibility of the authors. Funding was provided by the International Business Center of the Katz Graduate School of Business.


In December 2000, the São Paulo Stock Exchange launched a new premium market segment for companies that voluntarily commit to “good practices of corporate governance.” We construct a composite index (NM6) that combines six proxies for the main governance practices targeted by Bovespa's reform. We find that higher scores for our index are related to greater market value but not to better operating performance. An investment strategy that purchased stocks of firms with high NM6 and sold stocks of firms with low NM6 would have earned abnormal returns of 10.68% per year from 2001 to 2005.