Research Summary

Experiments in Financial Democracy: Corporate Governance and Financial Development in Brazil, 1882-1950 (BOOK)

by Aldo Musacchio


In my first book manuscript, Experiments in Financial Democracy, I challenge the idea that it was colonial institutions that sent Brazil, a civil law country, down a particular path of corporate governance and finance. Detailed archival research reveals significantly different patterns of corporate governance and finance between the beginning of the twentieth century and the 1990s. In order to attract investors, the founders of companies organized before 1910 often included in the statutes stronger protections for small shareholders than what was mandated by law. The most important of these protections were maximum vote provisions that capped the number of votes a single shareholder (and sometimes even a single proxy voter) could exercise during a shareholder meeting. An analysis of the shareholder lists of nearly 100 Brazilian companies revealed a correlation between corporate statutes that protected small shareholders and less concentrated ownership and control. I maintain that the corporate governance rules in the past help to explain the peak in equity market development observed between 1890 and 1914 (by some measures, equity markets were more developed then than they are today).

The second main contribution of Experiments in Financial Democracy is to show that Brazil’s bond markets were more developed in the past than they are today. Bond markets in the past were larger than today because creditors then enjoyed strong legal protections by which companies were inclined to abide. Some of these findings were published in articles before the book manuscript was completed. In these earlier papers I document the relatively large size of Brazil’s bond markets during the first era of financial globalization (1870-1913) and the stronger creditor protections that existed before 1945.