The firm–investor level characteristics of institutional investor engagement in Brazil

The degree and form of engagement of a particular institutional investor, its potential alignment with management, and the stability and duration of its stock holdings vary with the investee company. This article scores each firm–investor stock holding pair considering various engagement characteristics simultaneously and investigates their impact on the corporate governance practices in a panel of Brazilian companies between 2013 and 2016. Research about institutional investors activism in emerging markets is still scarce according to Claessens and Yurtoglu (Emerg Mark Rev 15(1):1–33, 2013), who claim that institutional investors may be more concerned about avoiding abuse from controlling shareholders than trying to monitor them, leading to a potential contrast with their behavior in developed countries. The results show that asset managers engage less than other institutional investors and that there was no significant impact of engagement on corporate governance when firm–investor pair level and company-aggregated institutional investor scores are used. Examination of individual items of the score indicates that being a board member and signatory of shareholders’ agreement is associated with worse corporate governance practices, suggesting that investors are probably aligned with management when they occupy insider positions. Institutional investors that hold stable and long-term equity stakes and foreign ones are related to better corporate governance practices. Minority shareholders should not construe the presence of institutional investors, particularly the domestic ones, as evidence of strong external corporate management monitoring in emerging markets.