The Role of the BNDES (Brazilian Development Bank) on the Corporate Governance of Large Companies in Brazil

The Brazilian Development Bank (BNDES) is the main financing agent for long term investments in Brazil. Given its relevance, deriving from its large disbursements at subsidized interest rates, the bank could positively influence the corporate governance landscape among large Brazilian companies. This essay qualitatively analyzes the hypothesis that BNDES promotes higher governance standards in its investee companies, by focusing on the 2009 operations of the bank. The results do not support this view. The analysis of both BNDES loans and investments as shareholder and bondholder does not corroborate the argument that the bank requires higher corporate governance standards when makes its investments, nor that it promotes it afterward. On the contrary, anecdotal evidence is found of companies with recent corporate governance problems that have received large inflows from the bank, as well as of several companies extremely opaque in their governance model which are among the main loan operations of the bank in 2009. The essay also proposes some measures that BNDES could adopt in order to explicitly take into account governance issues in its disbursements decisions. Such measures could encourage firms to invest more in better governance practices, as well as convince the market that corporate governance is a key issue for BNDES.