Principal-principal conflicts leading to activism of a large government-owned investor in Brazil

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Abstract

This article analyzes conflicts between principals that led to activism by one large Brazilian government-owned investor as a minority shareholder and verifies the antecedents, means employed, apparent motivations, and effectiveness of its reactions (Goranova & Ryan, 2014). It examines the cases of three large high ownership concentration listed companies using solely public sources. Poor performance was a frequent conflict antecedent. No evident trade-off between activism and corporate governance (CG) practices emerged. High ownership concentration influenced the way the investor reacted and its success because opposition through internal CG mechanisms was usually not successful and led to legal proceedings. The limitations of the regulatory framework became evident from the mixed outcomes of these proceedings. The investor was not exclusively financially motivated and it occasionally opposed the interests of other minority shareholders to follow government policy. These findings illustrated how high ownership concentration rendered difficult the mitigation of principal-principal conflicts even for a large government-owned investor and help explain the failure of previous econometric studies to relate activism, quality of CG practices and performance (Young, Peng, Ahlstrom, Bruton, & Jiang, 2008).

Keywords: Principal-Principal Conflicts, Shareholder Activism, Institutional Investors, Emerging Markets, Brazil

Authors’ individual contribution: Conceptualization – R.L.; Methodology – R.L. and B.E.D.; Investigation – B.E.D.; Formal Analysis – B.E.D.; Writing – R.L. and B.E.D.; Supervision – B.E.D.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G32, G34

Received: 15.11.2020
Accepted: 15.01.2021
Published online: 20.01.2021

How to cite this paper: Duarte, B. E., & Leal, R. P. C. (2021). Principal-principal conflicts leading to activism of a large government-owned investor in Brazil. Corporate Governance and Organizational Behavior Review, 5(1), 15-25. https://doi.org/10.22495/cgobrv5i1p2