Private equity and corporate governance: managing brazilian SMEs

Abstract

This paper aims to identify the effectiveness of private equity and venture capital (PE/VC) funds in promoting best practices of corporate governance in small and medium enterprises (SMEs) committed to PE/VC partnerships, in an institutional environment characterized by ownership concentration, lack of support for minorities' shareholder rights, and limited outside sources of finance for SMEs. Design/methodology/approach: Based on the literature related to similar work and context as in Eastern Europe and South Africa and best corporate governance practices developed for Brazil, the authors developed a list of aspects associated to practices related to SMEs. This list was submitted to 15 specialists, and the resulting compilation produced a list of 49 items that were submitted to a sample of 78 respondents to evaluate the relative importance of each item. Finally, a survey comprised of 70 entrepreneurs and managers of SMEs with investments from PE/VC funds evaluated the situation of their companies before and after forming a partnership with the fund. Findings: The study provides evidence that PE/VC funds play an important role in promoting best practices of corporate governance in invested SMEs, which contributes to development of the institutional environment and SMEs access to outside sources of finance. Originality/value: The study contributes empirical evidence to the role played by PE/VC funds and their influence on corporate governance practices.