GOVERNANCE THROUGH STOCK TRADING IN BRAZIL: EVIDENCE WITH INSTITUTIONAL INVESTORS

VASCONCELOS, LUCAS N. C.; MARTINS, ORLEANS S.

doi:10.1590/1678-6971/eRAMD200046

LUCAS N. C. VASCONCELOS

Federal University of Paraíba (UFPB), João Pessoa, PB, Brazil.

Lucas N. C. Vasconcelos, master by the Postgraduate Program in Administration, Federal University of Paraíba (UFPB); Orleans S. Martins, Ph.D by the Multi-Institutional and Interregional Postgraduate Program in Accounting, University of Brasília (UnB). Lucas N. C. Vasconcelos is now professor at the Department of Finance and Accounting of the UFPB; Orleans S. Martins is now professor at the Department of Finance and Accounting of the UFPB.

https://orcid.org/0000-0003-2252-1950

ORLEANS S. MARTINS Correspondence concerning this article should be addressed to Orleans S. Martins, Cidade Universitária, s/n, Castelo Branco, João Pessoa, Paraíba, Brazil, CEP 58.051-000. E-mail: orleansmartins@yahoo.com.br

Federal University of Paraíba (UFPB), João Pessoa, PB, Brazil.

Lucas N. C. Vasconcelos, master by the Postgraduate Program in Administration, Federal University of Paraíba (UFPB); Orleans S. Martins, Ph.D by the Multi-Institutional and Interregional Postgraduate Program in Accounting, University of Brasília (UnB). Lucas N. C. Vasconcelos is now professor at the Department of Finance and Accounting of the UFPB; Orleans S. Martins is now professor at the Department of Finance and Accounting of the UFPB.

https://orcid.org/0000-0002-4966-0347

Correspondence concerning this article should be addressed to Orleans S. Martins, Cidade Universitária, s/n, Castelo Branco, João Pessoa, Paraíba, Brazil, CEP 58.051-000. E-mail: orleansmartins@yahoo.com.br

Lucas N. C. Vasconcelos, master by the Postgraduate Program in Administration, Federal University of Paraíba (UFPB); Orleans S. Martins, Ph.D by the Multi-Institutional and Interregional Postgraduate Program in Accounting, University of Brasília (UnB).

Lucas N. C. Vasconcelos is now professor at the Department of Finance and Accounting of the UFPB; Orleans S. Martins is now professor at the Department of Finance and Accounting of the UFPB.

Panel A: Sample construction process
Steps															Stocks
All stocks available in the databases between 12/2009 and 12/2017															562
Stocks without data for independent variables															(214)
Stocks without data for dependent variables															(54)
Financial companies															(24)
Special preferred stocks (PNAs and PNBs)															(19)
The sample of most liquid stocks															233
The sample of ordinary stocks (with vote right)															187
The sample of preferred stocks (without vote right)															60
Panel B: Sectorial distribution
Sec.	A		B		C		D		E		F		G			H		I		J		Total
N	37		69		17		11		28		10		12			6		38		5		233
%	15.9		29.6		7.3		4.7		12.0		4.3		5.2			2.6		16.3		2.1		100
Panel C: Temporal distribution
Year		2009		2010		2011		2012		2013		2014		2015			2016		2017		Total
N		163		166		174		184		186		187		178			175		184		1597
%		10.2		10.4		10.9		11.5		11.6		11.7		11.1			11.0		11.5		100

Investors	Keywords
Investment Funds ^a a Words associated with banks, asset managers, and pension funds;	FIA, Banco, Bank, Banc, Equity, Equities, Hedge, Asset, Management, Capital, Clube de, Foundation, FI Mult, Research, Group, Fund, Ações, Investment, Investments, Investimentos, Gestão, Cred, Previ, Petros, Previdência, Pension, Partners, FIP, FIA, Insurance.
Foreign Investors ^b b words associated with foreign companies;	Llc, Llp, GmbH, Ltd, Inc, B.V, BV, Corporation.
Holdings	Participações, Partic, Holding, Empreendimentos.
Other companies^c c acronyms associated with limited liability companies.	SA, S.A, S/A, Ltda.
Government	Governo, Sec de Est, Estado, União, Estadual, BNDES, BNDESPar.

Controls	Variable definition	Main References
Systematic risk (Beta)	Calculated with the market model with one-year daily returns.	Morck, Yeung and Yu, 2000Morck, R., Yeung, B., & Yu, W. (2000). The information content of stock markets: Why do emerging markets have synchronous stock price movements? Journal of Financial Economics, 58(1), 215-260. doi:10.1016/S0304-405X(00)00071-4 https://doi.org/10.1016/S0304-405X(00)00...
Firm size (a) (MV)	ln of firm market capitalization	Easley et al. (2002)Easley, D., Hvidkjaer, S., & O’Hara, M. (2002) Is information risk a determinant of asset returns? Journal of Finance, 57(5), 2185-2221. Retrieved from http://www.jstor.org/stable/3094509 http://www.jstor.org/stable/3094509...
Firm size (TA)	ln of total assets	Easley et al. (2002)Easley, D., Hvidkjaer, S., & O’Hara, M. (2002) Is information risk a determinant of asset returns? Journal of Finance, 57(5), 2185-2221. Retrieved from http://www.jstor.org/stable/3094509 http://www.jstor.org/stable/3094509...
Firm leverage (Debt)	Total debt to total capital	Gul, Kim and Oiu (2010)Gul, F. A., Kim, J., & Qiu, A. A. (2010). Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China. Journal of Financial Economics, 95(3), 425-442. doi:10.1016/j.jfineco.2009.11.005 https://doi.org/10.1016/j.jfineco.2009.1...
Market-to-book (M / B)	Market value of equity to book value of equity	Gul et al. (2010)Gul, F. A., Kim, J., & Qiu, A. A. (2010). Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China. Journal of Financial Economics, 95(3), 425-442. doi:10.1016/j.jfineco.2009.11.005 https://doi.org/10.1016/j.jfineco.2009.1...
Enterprise value to operational earnings (EV / EBIT)	The market value of equity plus book value of debt to Ebit.	Gul et al. (2010)Gul, F. A., Kim, J., & Qiu, A. A. (2010). Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China. Journal of Financial Economics, 95(3), 425-442. doi:10.1016/j.jfineco.2009.11.005 https://doi.org/10.1016/j.jfineco.2009.1...
Profit volatility (VROA)	Sample standard deviation of quarterly ROAs over the last two years. This variable was truncated between 0 and 100.	Morck, et al. (2000)Morck, R., Yeung, B., & Yu, W. (2000). The information content of stock markets: Why do emerging markets have synchronous stock price movements? Journal of Financial Economics, 58(1), 215-260. doi:10.1016/S0304-405X(00)00071-4 https://doi.org/10.1016/S0304-405X(00)00...
Analyst coverage (Analy)	The number of analysts who follow the company.	Piotrosk and Roulstone (2004)Piotroski, J. D., & Roulstone, D. (2004). The influence of analysts, institutional investors, and insiders on the incorporation of market, industry, and firm-specific information into stock prices. Accounting Review, 79(4), 1119-1151. Retrieved from http://www.jstor.org/stable/4093088 http://www.jstor.org/stable/4093088...
Stock trading volume (In(VOL))	ln of total stock trading volume.	Fang et al. (2009)Fang, V. W., Noe, T. H. & Tice, S. (2009). Stock market liquidity and firm value. Journal of Financial Economics, 94(1), 150-169. doi:10.1016/j.jfineco. 2008.08.007 https://doi.org/10.1016/j.jfineco. 2008....
Number of days with zero returns (Zeros)	Number of days with zero returns in a year as a fraction of annual trading days	Fang et al. (2009)Fang, V. W., Noe, T. H. & Tice, S. (2009). Stock market liquidity and firm value. Journal of Financial Economics, 94(1), 150-169. doi:10.1016/j.jfineco. 2008.08.007 https://doi.org/10.1016/j.jfineco. 2008....

Variable		Mean	Median	SD	Min.	Max.
Panel A - sample of ON stocks
Abnormal returns (%)	eRet	8.928	-0.065	57.901	-123.265	483.488
Analyst coverage	Analy	4.874	3.000	5.157	0.000	18.000
Bid-ask spread (%)	BASP	3.525	3.290	2.202	0.000	48.309
Firm value to Ebit	EV / EBIT	10.441	10.809	21.594	-119.775	113.487
Financial leverage	Debt	42.475	42.662	23.725	0.000	99.472
Market capitalization	In(Mv)	14.482	14.648	1.793	7.812	19.751
Market-to-book	In(M /B)	0.323	0.363	1.050	-2.941	4.513
No. of institutional investors	nII	3.809	4.000	2.676	0.000	26.000
Ownership dispersion	hII	-48.426	-45.881	29.199	-100.000	0.000
Price non-synchronicity	NSyns	2.637	2.175	1.965	-0.024	9.775
Executive variable payment (%)	Remu	10.612	0.000	17.937	0.000	99.566
Return on assets (%)	ROA	7.567	7.493	10.505	-90.249	60.557
ROA volatility	VROA	3.713	2.046	7.602	0.000	100.000
Systematic risk	Beta	0.583	0.536	0.420	-1.871	3.903
Total assets	In(TA)	22.136	22.065	1.614	16.546	27.525
Total of zero returns (%)	Zeros	13.033	5.220	18.310	0.000	89.837
Trading volume	In(VOL)	13.109	13.477	2.634	3.216	18.305
Panel B - sample of PN stocks
Abnormal returns (%)	eRet	2.974	-4.163	47.038	-121.539	230.903
Analyst coverage	Analy	2.987	0.000	4.968	0.000	16.000
Bid-ask spread (%)	BASP	3.340	2.879	3.598	0.000	51.935
Firm value to Ebit	EV / EBIT	9.200	7.989	20.170	-93.222	113.487
Financial leverage	Debt	40.860	41.108	26.835	0.000	99.543
Market capitalization	In(Mv)	13.157	13.153	2.371	8.032	18.896
Market-to-book	In(M / B)	-0.465	-0.488	1.017	-2.941	3.649
No. of institutional investors	nII	3.820	3.000	3.425	0.000	25.000
Ownership dispersion	hII	-43.862	-40.405	31.346	-100.000	0.000
Price non-synchronicity	NSyns	3.414	2.985	2.477	-0.024	9.775
Executive variable payment (%)	Remu	12.592	0.000	17.429	0.000	56.357
Return on assets (%)	ROA	6.679	6.704	10.351	-48.240	100.742
ROA volatility (%)	VROA	3.477	2.106	5.032	0.000	48.773
Systematic risk	Beta	0.506	0.464	0.594	-7.058	1.981
Total assets	In(TA)	21.808	21.938	2.066	17.057	27.525
Total of zero returns (%)	Zeros	25.870	11.788	26.936	0.000	93.089
Trading volume	In(VOL)	11.603	11.129	3.389	4.440	19.059

Independent variables	Dependent variable: eRet
	H1: β₁(II) < 0
	II = In(nII)			II = hII
	The most liquid ones (1)	ON stocks (2)	PN stocks (3)	The most liquid ones (4)	ON stocks (5)	PN stocks (6)
II	1.984 (0.40)	5.636 (1.04)	-4.508 (-0.47)	-0.058 (-0.69)	-0.048 (-0.49)	-0.081 (-0.65)
Beta	8.218 * (1.65)	9.152 (1.50)	7.461 (1.16)	8.213 (1.66)	9.343 (1.54)	8.139 (1.18)
ln(MV)	8.619 * (1.93)	7.633 (1.54)	16.318 ** (2.64)	8.668 (1.95)	7.609 (1.55)	16.667 *** (2.76)
ln(M/B)	32.759 *** (6.33)	36.485 *** (6.53)	16.002 ** (2.36)	32.723 (6.37)	36.369 *** (6.58)	15.645 ** (2.24)
Debt	-0.777 *** (-3.99)	-0.926 *** (-4.09)	-0.183 (-0.68)	-0.775 (-4.00)	-0.916 *** (-4.07)	-0.190 (-0.72)
Zeros	-0.315 (-1.62)	-0.517 ** (-2.24)	0.087 (0.36)	-0.324 (-1.67)	-0.525 ** (-2.26)	0.090 (0.37)
ln(Analy)	-23.817 *** (-4.55)	-26.023 *** (-4.95)	-14.784 (-1.07)	-23.727 (-4.53)	-25.599 *** (-4.82)	-13.870 (-1.02)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes	Yes	Yes
Observations	1,597	1,304	400	1,597	1,304	400
Individuals	233	191	60	233	191	60
Within-R²	23.48%	28.64%	16.68%	23.50%	28.25%	16.64%

Panel A - Institutional investors and the information flow (II = In(nII))
Independent variables	Dependent variable: NSync			Dependent variable: BASP
	H2: β₁ > 0			H2: β₁ < 0
	The most liquid ones (1)	ON stocks (2)	PN stocks (3)	The most liquid ones (4)	ON stocks (5)	PN stocks (6)
ln(nII)	0.032 (0.42)	-0.054 (-0.63)	0.381 ** (2.57)	-0.250 ** (-2.34)	-0.123 (-1.18)	-0.483 * (-1.89)
ln(MV)	-0.227 * (-1.76)	-0.157 (-1.08)	-0.414 ** (-2.24)	-0.624 *** (-6.43)	-0.653 *** (-6.75)	-0.333 (-1.53)
ln(M/B)	0.271 ** (2.09)	0.294 ** (2.02)	0.055 (0.32)	-0.022 (-0.27)	0.011 (0.14)	-0.237 * (-1.73)
Debt	-0.000 (-0.17)	-0.004 (-0.89)	0.014 (1.33)	0.015 * (1.72)	0.011 (1.29)	0.030 (1.41)
VROA	-0.184 (-0.34)	-0.426 (-0.76)	-0.294 (-0.14)	0.482 (0.97)	0.516 (1.04)	-0.736 (-0.53)
ln(Analy)	-0.279 ** (-2.39)	-0.287 ** (-2.22)	-0.119 (-0.61)	-0.257 * (-1.75)	-0.308 ** (-2.21)	0.054 (0.13)
ln(VOL)	-0.121 ** (-2.08)	-0.168 *** (-2.67)	0.041 (0.34)	0.062 (0.31)	0.133 (0.88)	-0.131 (-0.25)
Zeros	0.034 *** (6.24)	0.037 *** (5.74)	0.036 *** (4.01)	-0.014 (-1.23)	-0.008 (-0.83)	-0.030 (-0.99)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes	Yes	Yes
Observations	1,597	1,304	400	1,597	1,304	400
Individuals	233	191	60	233	191	60
Within-R²	19.81%	22.61%	19.46%	16.56%	20.00%	15.83%
Panel B - Institutional investors and the information flow (II = hII)
Independent variables	Dependent variable: NSync			Dependent variable: BASP
	H2: β₁ > 0			H2: β₁ < 0
	The most liquid ones (1)	ON stocks (2)	PN stocks (3)	The most liquid ones (4)	ON stocks (5)	PN stocks (6)
hII	-0.003 ** (-2.13)	-0.002 (-1.30)	-0.006 (-1.64)	-0.001 (-0.59)	-0.000 (-0.07)	-0.003 (-0.37)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes	Yes	Yes
Within-R²	20.07%	22.69%	18.99%	16.17%	19.87%	14.88%

Panel A - Institutional investors and the information flow (II = In(nII))
Independent variables	Dependent variable: NSync			Dependent variable: BASP
	H2a: β₁ > 0 ^ β₂ < 0			H2: β₁ < 0 ^ β₂ > 0
	The most liquid ones (1)	ON stocks (2)	PN stocks (3)	The most liquid ones (4)	ON stocks (5)	PN stocks (6)
nII	0.008 (0.24)	0.015 (0.43)	0.078 (1.21)	-0.111 ** (-2.50)	-0.057 (-1.40)	-0.249 ** (-2.21)
nII ²	-0.000 (-0.24)	-0.003 ** (-2.30)	-0.000 (-0.20)	0.004 *** (2.81)	0.003 * (1.72)	0.010 ** (2.60)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes	Yes	Yes
Observations	1,597	1,304	400	1,597	1,319	400
Individuals	233	194	60	233	194	60
Within-R²	19.80%	22.84%	19.35%	16.63%	20.04%	16.23%
Panel B - Institutional Investors and the information flow (II = hII)
Independent variables	Dependent variable: NSync			Dependent variable: BASP
	H2: β₁ > 0 ^ β₂ < 0			H2: β₁ < 0 ^ β₂ > 0
	The most liquid ones (1)	ON stocks (2)	PN stocks (3)	The most liquid ones (4)	ON stocks (5)	PN stocks (6)
hII	-0.004 (-0.89)	-0.001 (-0.33)	-0.013 (-1.16)	0.003 (0.57)	-0.002 (-0.34)	0.022 * (1.71)
hII ²	-0.000 (-0.17)	-0.000 (0.05)	-0.000 (-0.68)	0.000 (0.95)	0.000 (-0.36)	0.000 ** (2.44)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes	Yes	Yes
Within-R²	20.07%	22.69%	19.07%	16.21%	19.88%	15.46%

*Panel A - NSync* levels, institutional investors (In(nII)) and firm' operational performance**
Independent variables	Dependent variable: ROA
	H3: β₁ > 0^a a β1> 0 was expected in cases in which NSync is greater than the median.
	Sample: high NSync ( ≥ Median)			Sample: low NSync ( < Median)
	The most liquid ones (1)	ON stocks (2)	PN stocks (3)	The most liquid ones (4)	ON stocks (5)	PN stocks (6)
ln(nII)	0.149 (0.16)	0.619 (0.52)	-2.177 (-1.58)	0.381 (0.62)	0.056 (0.08)	0.719 (1.01)
ln(MV)	2.797 ** (2.60)	1.737 (1.42)	2.884 (1.56)	2.645 ** (2.43)	2.628 ** (2.15)	5.293 ** (2.58)
ln(M/B)	0.566 (0.46)	1.077 (0.78)	0.594 (0.55)	2.884 *** (4.34)	3.188 *** (4.70)	-0.384 (-0.18)
Debt	-0.083 (-1.34)	-0.054 (-0.77)	-0.171 ** (-2.50)	-0.028 (-0.69)	-0.031 (-0.70)	-0.009 (-0.12)
Zeros	0.003 (0.10)	-0.030 (-0.80)	0.068 (1.59)	-0.148 (-1.49)	-0.137 (-1.06)	0.093 (1.25)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes	Yes	Yes
Observations	682	552	157	915	752	243
Individuals	116	95	30	117	96	30
Within-R²	7.43%	6.41%	18.84%	29.24%	36.56%	20.03%
*Panel B - NSync* levels, institutional investors (hII) and firm' operational performance**
Independent variables	Dependent variable: ROA
	H3: β¹ > 0^a a β1> 0 was expected in cases in which NSync is greater than the median.
	Sample: high NSync ( ≥ Median)			Sample: low NSync ( < Median)
	The most liquid ones (1)	ON stocks (2)	PN stocks (3)	The most liquid ones (4)	ON stocks (5)	PN stocks (6)
hII	0.032 (1.59)	0.056 ** (1.99)	-0.026 (-0.76)	-0.027 ** (-2.06)	-0.025 * (-1.79)	0.003 (0.20)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes	Yes	Yes
Within-R²	7.84%	7.34%	18.26%	29.68%	37.02%	19.91%

Panel A: the most liquid ones
	HNHR	HNLR	LNHR	LNLR	HBHR	HBLR	LBHR	LBLR
NSync	4.406	4.412	1.443	1.688	2.055	2.734	2.769	3.244
BASP	2.803	3.594	3.332	3.463	3.908	4.611	2.558	2.447
Remu	19.895	0.000	23.499	0.276	19.083	0.000	22.159	0.021
ROA	7.552	3.591	9.854	8.841	7.993	2.940	10.666	8.726
nII	3.773	3.194	4.571	3.462	4.228	3.645	4.290	2.966
hII	-51.522	-42.895	-48.187	-46.488	-47.253	-45.219	-49.419	-45.848
Panel A: ONs
	HNHR	HNLR	LNHR	LNLR	HBHR	HBLR	LBHR	LBLR
NSync	3.900	4.208	1.440	1.627	1.998	2.618	2.526	2.963
BASP	2.934	3.604	3.376	3.490	3.968	4.512	2.600	2.550
Remu	21.911	0.000	22.139	0.200	18.264	0.000	22.547	0.000
Panel A: ONs
	HNHR	HNLR	LNHR	LNLR	HBHR	HBLR	LBHR	LBLR
ROA	7.147	4.413	10.636	8.445	8.005	3.154	10.706	9.894
nII	3.754	3.460	4.480	3.339	3.937	3.721	4.307	3.135
hII	-56.225	-44.885	-49.156	-46.796	-48.640	-45.627	-54.619	-45.026
Panel B: PNs
	HNHR	HNLR	LNHR	LNLR	HBHR	HBLR	LBHR	LBLR
NSync	5.486	5.606	1.778	2.377	2.416	3.045	3.787	4.612
BASP	2.162	2.978	3.009	3.436	3.418	4.518	2.121	1.905
Remu	19.816	0.000	25.253	0.112	25.811	0.000	22.441	0.258
ROA	8.579	1.580	9.478	5.288	8.255	1.439	9.885	6.287
nII	3.239	1.952	5.030	3.375	4.957	3.282	3.924	2.250
hII	-51.953	-54.518	-41.149	-36.462	-40.928	-46.131	-45.875	-45.952

*Panel A - NSync* levels, institutional investors (In(nII)) and firm' operational performance**
Independent variables	Dependent variable: ROA
	H3: β₁ > 0
	HNHR (1)	HNLR (2)	LNHR (3)	LNLR (4)
ln(nII)	3.044 * (1.94)	-1.045 (-0.84)	0.597 (0.57)	-0.176 (-0.21)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes
Observations	225	314	413	387
Individuals	36	52	50	51
Within-R²	32.35%	15.36%	30.66%	33.67%
*Panel B - NSync* levels, institutional investors (In(nII)) and firm' operational performance**
Independent variables	Dependent variable: ROA
	H3: β₁ > 0
	HNHR (1)	HNLR (2)	LNHR (3)	LNLR (4)
hII	0.053 * (1.68)	0.057 * (1.89)	-0.030 (-1.22)	-0.023 (-1.66)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes
Observations	225	314	413	387
Individuals	36	52	50	51
Within-R²	31.83%	16.21%	30.98%	34.15%
*Panel C - BASP* levels, institutional investors (In(nII)) and firm' operational performance**
Independent variables	Dependent variable: ROA
	H3: β₁ > 0
	HBHR (1)	HBLR (2)	LBHR (3)	LBLR (4)
ln(nII)	1.808 (1.45)	-1.665 (-1.42)	0.181 (0.17)	-0.196 (-0.19)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes
Observations	320	319	368	332
Individuals	41	48	50	50
Within-R² (%)	37.85%	19.18%	21.36%	1471
*Panel D - BASP* levels, institutional investors (In(nII)) and firm' operational performance**
Independent variables	Dependent variable: ROA
	H3: β₁ > 0
	HBHR (1)	HBLR (2)	LBHR (3)	LBLR (4)
hII	-0.022 (-0.71)	0.059 ** (2.18)	-0.017 (-0.69)	-0.003 (-0.18)
Fixed eff. (i, t)	Yes	Yes	Yes	Yes
Observations	320	319	368	332
Individuals	41	48	50	50
Within-R² (%)	37.29%	19.84%	21.53%	14.71%

[1] Correspondence concerning this article should be addressed to Orleans S. Martins, Cidade Universitária, s/n, Castelo Branco, João Pessoa, Paraíba, Brazil, CEP 58.051-000. E-mail: orleansmartins@yahoo.com.br

Brasil

Brasil

GOVERNANCE THROUGH STOCK TRADING IN BRAZIL: EVIDENCE WITH INSTITUTIONAL INVESTORS

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