The government as a large shareholder: impact on corporate governance

Abstract

What is the role that governments play as large shareholders of mixed-owned firms? By solving a bargaining model over investment decisions, we unveil two corporate governance effects of the government's activism as a large shareholder: a voting effect that always lowers the value of minority votes and an interventionism effect that, depending on the government's political interests, either raises or lowers diversion of firm value by controlling shareholders. We apply our model to Brazilian data on voting premia and find that the activism of the Brazilian government from 2008 to 2012 harmed minority shareholders by making their votes less important for business decisions.