Voting rights concentration and shareholders agreement: influences on conservatism

Abstract

This study investigates how two features of the ownership structure of Brazilian companies, the voting rights concentration and the shareholders agreement, are associated with the conditional conservatism proposed by Basu (1997). This association was founded on the effects of entrenchment and enforcement. Considering that the degree of conservatism of a firm is tied to the incentives arising from mechanisms that reduce the informational risk to stakeholders, this study was developed on the following research question: What is the influence of both the voting rights concentration and shareholders agreement on the degree of conservatism in the companies listed on Bovespa? The main goal of this work is to deal with factors not yet considered in the (national and international) literature produced in this line of research, and provides evidence about the influence of ownership structure on conservatism in the Brazilian market, which is marked by a, agency conflict between controlling shareholders (controller) and minority shareholders. The sample of the paper comprises 617 observations of non-financial companies traded on Bovespa during the period from 2000 to 2008. Alternatively, another sample was selected, disregarding the observations for 2008, as a means to remove the effects of the financial crisis registered that year. The evidences indicate that the voting rights concentration contributes to decrease the degree of conservatism, while, on the other hand, the stockholders agreement contributes to an increase. Alternatively, the results considered in the global crisis year distort the Basu model (1997). The researchers hope this study contributes for investors, regulators, researchers and analysts to understand the function of accounting information in companies' governance process.