The unintended consequences of state ownership: The Brazilian experience

Theoretical Inquiries in Law

Volumn 13, Issue 2, 2012, Pages 503-523

  Pargendler, Mariana ^a  

^a School of Law   (Brazil)

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EID: 84870185756     PISSN: None     EISSN: 15653404     Source Type: Journal    
DOI: 10.1515/1565-3404.1303     Document Type: Article

References (49)

1. Peter Millard, Petrobras Raises $70 Billion in World's Largest Share Sale, Bloomberg (Sept. 25, 2010, 12:12 AM), http://www.bloomberg.com/news/ 2010- 09-24/petrobras-raises-70-billion-in-world-s-largest-share-sale-to-fund- fields. html.
2. The Company that Ruled the Wave, The Economist, Dec. 17, 2011, http://www. economist.com/node/21541753.
3. Chinese Acquisitions: China Buys Up the World, The Economist, Nov. 11, 2010, http://www.economist.com/node/17463473.
4. Maria Vagliasini, Governance Arrangements for State Owned Enterprises (World Bank Policy Research, Working Paper No. 4542, 2008) ("We are now getting into the third wave of reforms, and the focus seems to be shifting back to the improvement of SOEs while maintaining public ownership"). For examples of academic studies and policy recommendations on corporate governance practices of state-owned enterprises, see, for example, OECD, OEC D Guidelines on Corporate Governance of State-Owned Enterprises (2005) [hereinafter OEC D Guidelines] (including various recommendations of corporate governance best practices for SOEs);
5. Francisco Flores-Macias & Aldo Musacchio, The Return of State-Owned Enterprises: Should We Be Afraid?, Harv. Int'l Rev. (online ed.) (Apr. 4, 2009), http://hir.harvard.edu/the-return-of-state-owned-enterprises (describing improvements in the internal corporate governance of SOEs since the 1990s);
6. Simon C.Y. Wong, Improving Corporate Governance in SOEs: An Integrated Approach, 7 Corp. Governance Int'l 6, 13 (2004) (arguing that "poor corporate governance lies at the heart of the poor performance of state-owned enterprises (SOEs) around the world," and listing clear objectives, transparency and political insulation as the three main pillars of SOE reform).
7. Decreto-Lei No. 200, de 25 de Fevereiro de 1967, Diário Oficial da União [D.O.U.] de 27.2.1967, art. 5, III (Braz.). In the vast majority of countries, mixed enterprises are organized as business corporations.
8. Decreto-Lei No. 2.627, de 26 de Setembro de 1940, Diário Oficial da União [D.O.U.] de 1.10.1940 (Braz.).
9. Decreto-Lei No. 2.928, de 31 de Dezembro de 1940, Diário Oficial da União [D.O.U.] de 4.1.1941 (Braz.).
10. Maria Bárbara Levy, A Indústria do Rio de Janeiro através de Suas Sociedades Anônimas [The Industry of Rio de Janeiro Through Its Business Corporations] 257 (1994) (Braz.).
11. Trajano de Miranda Valverde, Sociedade por Ações [Business Corporations] 37 (3d ed. 1959) (Braz.).
12. Decreto-Lei No. 6.464, de 2 de Maio de 1944, Diário Oficial da União [D.O.U.] de 4.5.1944 (Braz.).
13. Exposição de Motivos ao Decreto-Lei No. 6.464, de 2 de Maio de 1944, quoted in J.C. Sampaio de Lacerda, Noções Fundamentais sobre Sociedades Anônimas [Fundamental Concepts on Business Corporations] 169 (1956) (Braz.).
14. For a detailed description of these policies, see David M. Trubek, Law, Planning and the Development of the Brazilian Capital Market, 72-73 N.Y.U. Graduate Sch. Bus. Admin. Inst. Fin. Bull. 1 (1971).
15. José Roberto Mendonça de Barros & Douglas H. Graham, Brazilian Economic Miracle Revisited: Private and Public Sector Initiative in a Market Economy, 13 Latin Am. Res. Rev. 5, 20 (1978).
16. Luciano Martins, Estado Capitalista e Burocracia no Brasil Pós-64 [Capitalist State and Bureaucracy in Brazil Post-64] 71 (1985).
17. Thomas J. Trebat, Brazil's State-Owned Enterprises 36 (1983).
18. Visão, Brazil Report: A Who's Who of the Brazilian Economy 45 (1974);
19. Mário Henrique Simonsen, A Nova Economia Brasileira [The New Brazilian Economy] (1974) (Braz.).
20. José Luiz Bulhões Pedreira, A Reforma da Lei das S/A [The Reform of the Corporations Law], Jornal do Brasil, Aug. 24, 1975 (Braz.)
21. reprinted in Fundamentos da Reforma das Sociedades Anônimas [Foundations of the Reform of the Corporations Law] 158 (Associação de Estudos de Direito de Empresa ed., 1976) (Braz.).
22. Exposição de Motivos ao Decreto-Lei No. 196, de 24 de Junho de 1976 (pelo Ministro da Fazenda).
23. For a more thorough description, see Ronald J. Gilson, Henry Hansmann & Mariana Pargendler, Regulatory Dualism as a Development Strategy: Corporate Reform in Brazil, the U.S. and the EU, 63 Stan. L. Rev. 475 (2011).
24. See, e.g., José Cretella Junior, Sociedades de Economia Mista no Brasil [Mixed Enterprises in Brazil], 80 Revista de Direito Administrativo 37 (1965) (Braz.).
25. Lei No. 6.404, de 15 de Dezembro de 1976, Diário Oficial da União [D.O.U.] de 17.12.1976 (Braz.).
26. Alfredo Lamy Filho & José Luiz Bulhões Pedreira, Justificação do Anteprojeto [Justification to the Draft Bill], in Fundamentos da Reforma das Sociedades Anônimas, supra note 19, at 25.
27. Commissão de Valores Mobiliários, Valor de Mercado do Capital das Companhias Abertas Brasileiras [Market Capitalization of Brazilian Publicly- Traded Companies], 11 Revista Brasileira do Mercado de Capitais 283, 289-91 (1978) (Braz.).
28. Nelson Laks Eizirik, As Lições do "Caso Vale" [The Lessons from the "Vale Case"], 16 Revista Brasileira de Mercado de Capitais 12, 18 (1980) (Braz.) (quoting the justifications advanced by the Treasury Secretary for the stock sale transaction).
29. Comissão de Valores Mobiliários, Inquérito Administrativo 04/80 (Oct. 10, 1980), Diário Oficial da União [D.O.U.] de 29.10.1980, at 21581 (Braz.) (noting that according to a then recent survey, state-owned companies accounted for fifty-five percent of the market capitalization in Brazil, with the state owning approximately three-quarters of these firms' capital).
30. Arnoldo Wald, Do Regime Legal da Venda das Ações de Sociedades de Economia Mista Pertencentes a União Federal [The Legal Regime for the Sale of Shares in Mixed Enterprises Belonging to the Federal Government], 16 Revista Brasileira de Mercado de Capitais 27, 28 (1980) (Braz.).
31. See IV Modesto Carvalhosa, Comentário a Lei de Sociedades Anônimas [Commentary to the Corporations Law] 361 (4th ed. 2009) (Braz.) (criticizing the under-enforcement of violations of Securities Law in the Vale Case).
32. Luciano Coutinho & Flavio Marcilio Rabelo, Brazil: Keeping It in the Family, in Corporate Governance in Development 35, 47 (Charles P. Oman ed., 2004);
33. see also Lucian Bebchuk & Mark Roe A Theory of Path Dependence in Corporate Ownership and Governance, 52 Stan L. Rev 127 1999) (noting the instability of dispersed ownership structures in jurisdictions where private benefits of control are high).
34. See Alexander Dyck & Luigi Zingales, Private Benefits of Control: An International Comparison, 69 J. Fin. 537, 539 (2004) (finding that privatizations through block sales are more common among countries displaying high private benefits of control);
35. William L. Megginson et al., The Choice of Private Versus Public Capital Markets: Evidence from Privatizations, 59 J. Fin. 2835 (2004) (finding a direct relationship between the share of SIPs over total privatizations and the level of legal investor protections in a given jurisdiction).
36. But see Assaf Hamdani & Ehud Kamar Hidden Government Influence over Privatized Banks, 13 Theoretical Inquiries L 567 2012 (arguing that the government's desire to exert informal influence over the financial sector best explains the prevalence of block sales in bank privatizations in Israel).
37. According to a different study, which used dual-class price differentials to estimate private benefits of control, an average Brazilian controlling shareholder could expect to extract up to 33.3% of the value of the company by holding as little of one-sixth of total cash flow rights, see Tatiana Nenova, The Value of Corporate Votes and Control Benefits: A Cross-Country Analysis, 68 J. Fin. Econ. 325, 327 (2003).
38. While the choice of private block sales as a privatization method led Brazil to weaken minority shareholder rights upon control sales, the adoption of share offerings by Italy and Germany prompted their governments to improve minority rights and the governance environment of privatized firms in order to maximize their privatization proceeds, see Mariana Pargendler, State Ownership and Corporate Governance, 80 Fordham L. Rev. 2917 (2012).
39. The purchase price to be paid for privatized firms was a hot button issue in the sales process. Numerous media reports and labor groups at the time expressed concern that the government would "give away" state-owned firms to foreign capitalists, see, e.g., Aloysio Biondi, O Brasil Privatizado: Um Balanço do Desmonte do Estado [Privatized Brazil: An Appraisal of the Disassembly of the State] (1999) (Braz.) (stressing numerous variations on the argument that state-owned enterprises were sold at an unfairly low price).
40. See, e.g., Nelson Eizirik, A Reforma das S.A. e do Mercado de Capitais [Corporate and Capital Markets Reform] 2 (2d ed. 1998) (Braz.).
41. For a model showing the exponential increase in agency costs in controllingminority structures, see Lucian A. Bebchuk, Reinier H. Kraakman & George G. Triantis, Stock Pyramids, Cross-Ownership, and Dual Class Equity: The Creation and Agency Costs of Separating Control from Cash Flow Rights, in Concentrated Corporate Ownership 295 (Randall Morck ed., 2000).
42. Ana Novaes, Privatização do Setor de Telecomunicaç ões no Brasil [Privatization of the Telecommunications Sector in Brazil], in A Privatização no Brasil 165 (2000) (Braz.).
43. See Bruno Rocha & Iam Muniz, Casos Brasileiros [Brazilian Cases], in Governança Corporativa no Brasil e no Mundo [Corporate Governance in Brazil and Around the World] 73 (Ricardo P.C. Leal et al. eds., 2002) (Braz.).
44. Mark Mobius, Getting Brazil to Clean Up Its Act, Latin Fin., Dec. 1, 2000, http://www.latinfinance.com/ArticlePrint.aspx?ArticleID=1438044.
45. Tatiana Nenova, Control Values and Changes in Corporate Law in Brazil 4 (World Bank, South Asia; World Bank - Policy Unit; Harvard University - Department of Economics, Working Paper, 2001), available at http://papers. ssrn.com/sol3/papers.cfm?abstract-id=294064.
46. Maria Helena Santana, The Novo Mercado, in Focus: Novo Mercado and Its Followers 1, 7 (2008).
47. see also Stakes and Mistakes: India's Government Is Privatising Companies for the Wrong Reasons, The Economist, Nov. 12, 2009, http://www.economist.com/ node/14845283 ("Listing even a small stake helps keep managers on their toes, by subjecting them to the scrutiny of the stockmarket. But the bigger the float, the better").
48. To be sure, the benefits that whole over partial state ownership may bring to the political economy of corporate governance by eliminating the government's conflict of interest will have to be balanced against the implications of different ownership structures for corporate performance. The available empirical evidence on the relative efficiency of mixed enterprises vis-a-vis wholly-owned SOEs is however mixed, but overall seems to provide mild support for the performance advantages of mixed enterprises, see, e.g., Stavros Gadinis, Can Private Investors Discipline State-Appointed Managers? Evidence from Greece Privatizations, 13 Theoretical Inquiries L. 525 (2012) (finding performance improvements following partial privatizations in Greece, even though corruption was not eliminated);
49. Aidan R. Vining & Anthony E. Boardman, Ownership Versus Competition: Efficiency in Public Enterprise, 73 Pub. Choice 205 (1992) (finding that SOEs and mixed enterprises are less profitable than private companies, and that wholly owned SOEs are less profitable than mixed enterprises).