Multiple comparisons of Brazilian stock market portfolios: a performance evaluation of the Corporate Governance Index

Abstract

The adoption of higher corporate governance standards increases the return, reduces the volatility of returns while enhancing the volume negotiated and the liquidity, exposure of stock returns to external risks is also reduced which lowers the cost of capital and increases the value of the company. These theories are analyzed for the Brazilian market with a review of literature for the purpose of studying portfolios to evaluate the performance of the Corporate Governance Index (CGI). The Bootstrap re-sampling method was used to compare mean and medians of the CGI, Ibovespa (IBO), IBrX, IBrX-50, FGV-E e FGV-100 portfolios from July 2001 to August 2005 for three different indicators which were returns, risks and returns adjusted for risk. For the first indicator both the nominal and real returns were used. In the second case risk measures for monthly nominal returns were used: the standard deviation, coefficient of variation and Beta of CAPM. Finally for returns adjusted for risk, the Sharpe Index (S), Treynor Index (T), M² Index, Alfa of Jensen ( α ) and Appraisal Ratio (A) were adopted. In view of the small statistical differences found it was concluded that the CGI performance was good therefore corroborating the value of higher corporate governance practices.