Share repurchase mechanisms and expropriation of minority shareholders: evidence from Brazil

Abstract

We examine the impact of the recent CVM Instruction #299 of February 1999 aimed at improving minority investor rights. Prior to enactment of this Instruction, tender offers for repurchase of shares were not subject to neither disclosure nor mandatory offers. However, we have found evidence that even after enacting Instruction #299, minority shareholders are still subject to expropriation, ceteris paribus. We have also found that companies with lower degree of separation of cash-flow and voting rights, and higher liquidity are less likely to have their minority shareholders expropriated. In addition, we have found empirical evidence that CVM Instruction #299 may lead to an increase in takeover activities. To verify this, we applied a probit model to find the main factors driving the control change. The two most significant factors are the CVM Instruction #299, the company size, and the liquidity. Interesting to note that shareholders with limited capability to leverage on minority shareholders (e.g. issuing more preferred non-voting shares) are more subject to a takeover. The findings are associated with governance isses, and might partially explain the illiquidity and underpricing of equity offerings pattern of Brazilian stock market in recent years.

Este artigo examina o impacto das recentes programas de recompra de ações sobre a expropriação de acionistas minoritários. Recentemente, houve 12 ofertas de recompra de ações cujo controle foi adquirido por investidores estratégicos estrangeiros ou por consórcios para comprar empresas privatizadas. Dois exemplos são: (i) a compra do controle da Lojas Renner, empresa de varejo da família Renner pela J. C. Penney; e (ii) Cargill comprando o controle da Solorrico, uma empresa de fertilizantes controlada por uma família. Paralelamente, a CVM emitiu a resolução #299 para evitar a expropriação de acionistas minoritários. Nós conjeturamos que pequenas e médias empresas com baixo crescimento, baixa alavancagem, e propriedade concentrada são candidatos mais prováveis para um 'takeover' com maior probabilidade de expropriação. Isto explica parcialmente a falta de liquidez e o alto desconto na oferta pública de ações no mercado acionário brasileiro.