Shareholding Control, Corporate Governance, and Equity Financing in Brazil

Objective: theories that indicate financial factors as determinants of financing decisions (trade-off, pecking order) were followed by others that take agency conflicts into account (agency theory, market timing). The contingency approach to corporate governance suggests that the effectiveness of its mechanisms depends on the firm’s organizational environment. This study aims to analyze the relationship of both corporate governance and the type of shareholding control (dominant, shared, and dispersed) with financing by share issuance. Methods: the sample is panel data with 1,433 annual observations from 168 non-financial firms listed on the Brazilian Stock Exchange (B3), with data from CVM and Economatica. Models were estimated using generalized least squares for panel data (FGLS). Results: the results show that the shareholding control configuration has a moderating effect on the relationship between equity financing and corporate governance, in accordance with the corporate governance contingency approach. Conclusions: dominant control positively moderates this relationship, indicating that corporate governance is seen, in these firms, as capable of reducing the possibility of expropriation of minority shareholders. The moderating effect of dispersed control is negative, signaling that dispersed control is considered an effective shareholding configuration in itself to avoid expropriation.