NOVO MERCADO
WILL IT EVER CEASE TO BE “NEW”?
The adoption of special listing segments by the São Paulo Stock
Exchange in the year 2000 was an important step forward
for the Brazilian equity market. The Bovespa exchange
introduced the Novo Mercado which is a premium listing tier
with voluntary corporate governance standards going above
and beyond the provisions of the law in protecting the rights
of minority shareholders vis-à-vis controlling shareholders.
Its official aim was to enhance shareholder rights and board
accountability. Simone Azevedo, a founding partner and chief
editor of Capital Aberto magazine (www.capitalaberto.com),
looks at the developments of the Novo Mercado and examines its
future challenges.
The year was 2000, and the capital market was
floundering. Market capitalization of companies traded
on the stock market had evolved since the beginning
of the 1990s, but the value had never surpassed 35%
the country’s GDP. By 1999, primary share issues did
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not amount to more than US$ 1.5 billion. There were
several reasons for the decline. After years of an economy
closed off to imports, investments and, consequently,
funding resources for companies were in short supply.
Loans provided by the BNDES, the federal government’s
development bank, represented an excellent alternative
for the entrepreneurial class, and the companies, in this
context, had little incentive to go public. Investors, in turn,
charged a high premium for investing in companies, thus
elevating their cost of capital. It was a vicious and perverse
circle that exasperated the advocates of a working capital
market for an economy that aimed to be more vibrant.
This was the context in which the BM&FBovespa called
in economists and lawyers to formulate a study that, in
December 2000, would give rise to distinctive levels of
governance at Bovespa — among them the special corporate
governance section named Novo Mercado [New Market].
Novo Mercado: Will it ever cease to be “new”?
Article by Simone Azevedo
9/19/13 10: ???