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What are the Costs of Conflicts between Controlling and Minority Shareholders in a Concentrated Ownership Environment?

The main agency conflict in concentrated ownership environments occurs between controlling and minority shareholders. We investigate the impact on share prices when news released on the specialized media indicates that the interests of these groups diverge. Specifically, we analyze 24 announcements of conflicts between shareholder groups in Brazil using two different event study methodologies. The results strongly support our hypothesis that such news constitutes an evidence of relevant agency costs taking place, leading to a higher perception of risk and reduced share prices. We find a strong negative stock price reaction to the announcement of such conflicts, with cumulative abnormal returns of around 12% for the 15 days surrounding the event date. Besides, this negative impact do not seems to be transitory, since there is no post-event positive drift. Overall, the results reinforce the importance of the adoption of good corporate governance practices in order to avoid corporate value destruction due to problems between shareholder groups.