Corporate governance and fundamental indexation in Brazil



Linha de Pesquisa
Finanças Corporativas

Raphael Moses Roquete, Ricardo P. C. Leal, Carlos Heitor Campani



Economics Bulletin, volume 38, n. 3, pp. 1494-1504.
Fundamental indexation uses fundamental indicators to weight stocks in a portfolio but evidence about its outperformance in across countries is mixed. It is possible that different legal environments impact these results. Brazilian companies voluntarily join one of four stock exchange listing segments with incrementally more demanding listing requirements about corporate governance (CG). The Brazilian market offers, thus, an opportunity to assess fundamental indexation in the same legal environment but under different listing requirements. The sample period begins in 2003 and ends in 2015. Categorical variables indicate the CG quality according to each listing segment. The fundamentals of a company used in fundamental indexation are multiplied by the corresponding categorical variable to compute portfolio weights. Companies with hypothetically better CG practices enjoy greater weights. The results show that such fundamental portfolios did not outperform, given that their estimated alphas are not significant when estimated with a five risk-factor model. Fundamental indices seem to be a variation of a value strategy and their performance was not influenced by different listing requirements in the same legal environment. It is possible that previous mixed results across countries were simply due to sample and period biases and not to the different legal environments.

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