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Capital markets were underdeveloped and played a minor role as a source of financial
resources for Brazilian companies throughout the
20th century. This role was mainly performed by
the State, which acted as the catalyst of economic activity through the state-owned companies
or as a lender of subsidized capital for the private companies. Besides the interventionist
economic policy, Brazil was a closed economy, limiting internal and external competition
and, consequently, the investment and innovation needs of the companies. This created a
situation favoring the corporate establishments, who were the only ones to raise cash and be able
to perform large investments. Black et al. (2008, p. 3) provided a concise and accurate picture
of the evolution of financial and capital markets in Brazil in the last century. According to
the authors, the aspects that characterized Brazilian environment until the early 1960s were
heavy regulation, stock exchanges run by the government, stock brokers as civil servants
with hereditary rights for trading shares, and monopoly for setting brokerage fees. They also
pointed out that some liberalization began after a military coup in 1964, with important capital
market milestones, like the enactment of the first law to regulate capital markets and securities
offerings in 1965 (Law 4.728/65), the creation of the Brazilian Securities and Exchange
Commission—Comissão de Valores
Mobiliarios (CVM)—in 1976 (Law 6.385/76), and the enactment of a
new Corporation Law in 1976 (Law 6.404/76), with separate rules for closely-held and
public corporations, dispensing with the old civil servant brokers, and allowing the emergence
of exchanges and private broker-dealers.
Black et al. (2008, p. 4) also observed that, in order to encourage stock market
development, the government carried out several initiatives during the 1970s and 1980s. For instance,
the State granted tax incentives, such as the Fundo
157, to firms that went public, and to
investors who purchased shares in public companies. Besides, it also created a captive market,
obliging pension funds and insurance companies to invest a minimum percentage of their assets in
the shares of public companies. Because of these measures, the number of publicly
traded companies touched 600 by the end of 1980s. In spite of the government interest in
developing capital markets, its incentives ended up in at least two negative collateral results—a
large number of the listed companies that never really intended to be public-held companies,
was being traded at stock markets only due to specific capital raising operations made possible
by tax incentives; and an overwhelming majority of firms with a high ratio of
outstanding, preferred non-voting shares, creating two classes of shareholders with a different set of
rights, that would, years later, become a major corporate governance problem in
Brazil. |
