Bovespa New Markets Adoption - Novo Mercado, Nível 1 and Nível 2, Determinants and Consequences

Abstract

This paper studies the determinants and consequences of firms that adopted the Brazilian new stock exchanges – Novo Mercado, Nível 1 and Nível 2. Since 2001 more than 61 companies chose to be traded in these exchanges with the intention to raise their levels of disclosure and corporate governance. In terms of determinants, firms that adopted the new markets are larger, more profitable, more likely to be traded as ADRs and have more dispersed ownership. As for the consequences, shares of firms that adopted the new markets are more liquid than shares of firms traded in the regular exchange (BOVESPA). In addition, firms that adopted the Nível 2 and the Novo Mercado – markets with stricter disclosure and governance requirements - also experienced an increase in liquidity when compared to their liquidity prior to the adoption.