Working Paper | HBS Working Paper Series | 2011

Leviathan as a Minority Shareholder: A Study of Equity Purchases by the Brazilian National Development Bank (BNDES), 1995-2003

by Sergio G. Lazzarini and Aldo Musacchio

Abstract

There is a growing literature comparing the performance of private vs. state-owned companies. Yet, there is little work examining the effects of having the government as a minority shareholder of private companies. We conduct such a study using data for 296 publicly traded corporations in Brazil, looking at the effects of equity purchases by the National Bank for Economic and Social Development (BNDES) on firm performance between 1995 and 2003. Our fixed-effects regressions show that BNDES's purchases of equity lead to increases in return on assets and investment in fixed assets. Finally, we find that the positive effect of BNDES's equity purchases is reduced when the target firms belong to state-owned and private pyramidal groups. Therefore, we argue that having development banks owning minority stakes can have a positive effect on performance as long as they promote long-term investments and are shielded from governmental interference and potential minority shareholder expropriation.

Keywords: Investment; Ownership Stake; State Ownership; Private Ownership; Performance Evaluation; Business and Government Relations; Business and Shareholder Relations; Banking Industry; Brazil;

Citation:

Lazzarini, Sergio G., and Aldo Musacchio. "Leviathan as a Minority Shareholder: A Study of Equity Purchases by the Brazilian National Development Bank (BNDES), 1995-2003." Harvard Business School Working Paper, No. 11-073, January 2011. (**Winner of the Prize for the Best Paper Presented at the Strategic Management Society Special Conference, Rio de Janeiro, 2011.)