Corporate Governance and Corporate Legitimacy: The Role of Boards

Firms’ legitimation through corporate governance and its association with risk and return in Brazil

“…The market perceives the risk of firms at the Novo Mercado level can be based on the legitimate aspect of adopting governance practices (S ahin, 2015;Rossoni & Mendes-Da-Silva, 2018), ignoring the possibility that the riskiest firms might seek this listing specifically because they are riskier. Nevertheless, the key argument is that legitimacy facilitates effective governance (Jonsson, 2020). Thus, based on Scott's (1995) legitimacy theory, the evidence of legitimation of Brazilian companies (Rossoni & Machado-da-Silva, 2013;Rossoni & Mendes-Da-Silva, 2018) and the fact that corporate governance quality is explained by endogenous factors and not necessarily by listing at the Novo Mercado level (Silveira & Barros, 2008), we present the first hypothesis of this study:…”

“…Thus, even without high returns, the firms would already be legitimized by the listing at the special level of governance. Especially due to the market expectation for better performance to other companies (Rossoni & Machado-da-Silva, 2013) and the perspective of stakeholders for management practices well accepted by the market (S ahin, 2015), which converges with the pressure environment that arises on companies that seek legitimation (Jonsson, 2020). Therefore, we present the second hypothesis:…”

“…Concerning return, corporate governance can be understanding as a way in which suppliers of finance to firms assure themselves of getting a return on their investment (Jonsson, 2020). In this sense, Core, Guay and Rusticus (2006) investigated whether there is a causal relationship between weak governance and low returns.…”

“…Concerning return, corporate governance can be understanding as a way in which suppliers of finance to firms assure themselves of getting a return on their investment (Jonsson, 2020).…”

“…This study does not address the analysis of corporate governance practices as risk factors, we take a look at the listing phenomenon at the highest level of corporate governance of B 3 and its association with risk (Rossoni & Mendes‐Da‐Silva, 2018) and return on investment (Fuenzalida, Mongrut, Arteaga, & Erausquin, 2013). We address the fact that such listing has played an important role in legitimizing firms (Jonsson, 2020), particularly in information environments with low legal protection for investors, as usually occurs in emerging countries.…”