STATE-OWNED ENTERPRISES

IN BRAZIL:

HISTORY AND LESSONS

Aldo Musacchio

Harvard Business School and NBER

Sergio G. Lazzarini

Insper Institute of Education and Research

VARIETIES OF STATE CAPITALISM

(Musacchio and Lazzarini, 2014)

Leviathan as an

entrepreneur

(owner/manager)

Full state control and

ownership of SOEs,

with limited autonomy

and transparency

Leviathan as a

majority investor

Publicly traded

SOEs with

improved autonomy

and transparency

State-owned

holding companies

(SOHCs)

Leviathan as a minority

investor

Partially privatized firms

(PPFs)

Minority stakes under

state-owned holding

companies (SOHCs)

Loans and equity from

state-owned and

development banks

Sovereign wealth funds

Other state-controlled

funds (e.g. pension funds,

life insurance companies).

Privately-

owned

firms

Leviathan as an

entrepreneur

(owner/manager)

Full state control and

ownership of SOEs,

with limited autonomy

and transparency

Leviathan as a

majority investor

Publicly traded

SOEs with

improved autonomy

and transparency

State-owned

holding companies

(SOHCs)

Leviathan as a minority

investor

Partially privatized firms

(PPFs)

Minority stakes under

state-owned holding

companies (SOHCs)

Loans and equity from

state-owned and

development banks

Sovereign wealth funds

Other state-controlled

funds (e.g. pension funds,

life insurance companies).

Privately-

owned

firms

Played a role in the initial

development of Brazil; yet

with different goals

EARLY DEVELOPMENT IN BRAZIL AND MODELS OF

STATE INTERVENTION

Leviathan as an Accidental Owner (1880s-1930s).

SOEs and the Big Industrialization Push (1934-1967).

The Zenith of Leviathan as an Entrepreneur (1967-1979).

The Demise of Leviathan as an Entrepreneur and

Privatization (1980s-1990s)

The Reinforcement of the Model where Leviathan is a

Minority Shareholder (1990s -), especially through BNDES.

LEVIATHAN AS AN ACCIDENTAL OWNER (1880s-

1930s)

In the second half of the nineteenth, domestic and foreign

entrepreneurs set up a nascent industrial sector.

That is, the early infrastructure projects necessary for the

development of a domestic market were not undertaken by

the government directly (Musacchio, 2009).

In this initial stage of state intervention, the government was

an insurer against failure and a residual owner. In that role,

the Brazilian government ended up owning and operating

SOEs mostly by accident.

Example: shipping and railways. Lloyd Brasileiro had to be

bailed out in 1913, thus falling under government control

(SEST 1985-1994; Baer et al. 1973; Topik 1987).

SOES AND THE BIG INDUSTRIALIZATION PUSH

(1934-1967)

Private stock and debt markets were in crisis and private

investors were not willing to take risks (Musacchio 2009).

First wave: during and after World War II, under President

Vargas. ISI with significant state ownership.

– Example of companies: CSN in steel (1941); CVRD (Vale) in

iron (1942); Fábrica Nacional de Motores (FNM), a

manufacturer of buses, trucks and cars (1943); Companhia

Hidroelétrica do São Francisco in electricity (1948); and many

others.

Second wave in the 1950s. Notable cases were Petrobras

(1953), and BNDE (1952).

– BNDE initially focused on SOEs in energy, steel and

transportation. By 1970, however, the private sector received

almost 70% of the loans (Najberg, 1989 18).

THE ZENITH OF LEVIATHAN AS AN ENTREPRENEUR

(1967-1979)

Number of SOEs in Brazil according to the date when they were founded, 1857–

1986

Source: Musacchio and Lazzarini (2014)

THE ZENITH OF LEVIATHAN AS AN ENTREPRENEUR

(1967-1979), EXPLAINED

The military government, especially after 1969, was a strong

believer of state intervention and ISI.

Example: local private industrialists complained about “the

lack of resources and low tariffs” to invest in the telecom

sector (Díaz-Alejandro, 1984). Eventually a state-owned

conglomerate, Telebras, was created (1972).

Thus, SOE expansion was not only because of lacking

private capital, but also because of uncertainty regarding the

profitability of private projects (given the environment of

governmental intervention).

Expansion was also driven by “empire building” by

autonomous SOE managers (Trebat, 1983) and

decentralization of SOEs in various ministries.

EMPIRE BUILDING

Organizational chart of the instances of control of Brazilian SOEs, c. 1979

Source: Musacchio and Lazzarini (2014)

Executive

Council for Economic Development

Council for Social Development

Ministry of Finance

Banco do Brasil

Acesita (Steel)

Caixa Economic Federal

Ministry of Industry and Commerce

Cia nacional de Alcalis (ash)

Siderbras (steel holding co.)

CSN

Acesita

Cosipa

Usiminas

etc...

Ministry of Mines and Energy

Petrobras and subsidiaries

Petroquisa (petrochemicals) &

subsidiaries

Petrobras distrib.

Petrobras Fertilizers

Petrobras Mining

Trading subsidiaries

CVRD

Docenave (shipping)

Rio Doce Geology and Mining

Vale Fertil (Fertilizers)

Valesul (Aluminum)

Other subsidiaries and co-owned

aluminum firms

Eletrobras (electricity holding) and subsidiaries

CHESF

Furnas

CBEE

Others

Ministry of Communications

Telebras (telcom holding co.)

Telerj

Telemig

Telesp

Other telecom subsidiaries

Ministry of Transportation

Railway holding co (RFFSA)

many railway firms

Port companies

Shipping co's

Construction co's

others

Ministry of Aeronautics

Embraer

Airports (Infraero)

Other ministries

Subsidiaries of other ministries, including commercial banks,

Agriculture research firms (Embrapa), and military companies.

Ministry of Planning Secretary of

Planning

BNDES

Other financing agencies

SOEs AND FIXED CAPITAL FORMATION

Fixed capital formation in Brazil originated from large SOEs, government units and

private firms

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1949 1959 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

Large SOEs Government Private fims

Source: Original data from Trebat (1083)

THE DEMISE OF LEVIATHAN AS AN ENTREPRENEUR

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

GDP annual change (%) % private firms with financial loss % SOEs with financial loss

Source: Musacchio and Lazzarini (2014)

HOW SOEs and PRIVATE FIRMS RESPONDED TO

THE CRISIS

How Brazilian SOEs versus private firms responded to the economic crisis of 1981-

1983. Differences-in-differences adjusted with propensity score matching.

Source: Musacchio and Lazzarini (2014)

7.5%

-2.6%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

SOEs Private

Ch

ang

e in

th

e n

um

ber

of

emp

loye

es p

re-a

nd

p

ost

-cri

sis

EVENTUALLY... PRIVATIZATIONS

0

5

10

15

20

25

30

35

40

45

50

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Financeiras

Não-financeiras

Total

Usiminas CSN

Embraer

Light

Vale, CPFL

Telebrás system

Banespa,

BEMGE

CESP,

COELCE

From 1990 to 2002, the government privatized 165 enterprises, obtaining total revenues

of around 87 billion dollars (BNDES, 2002).

Privatization revenues helped reduce public debt by an amount equivalent to 8% of GDP

(Carvalho, 2001) and improved the profitability of firms (Anuatti-Neto et al., 2005).

Leviathan as an

entrepreneur

(owner/manager)

Full state control and

ownership of SOEs,

with limited autonomy

and transparency

Leviathan as a

majority investor

Publicly traded

SOEs with

improved autonomy

and transparency

State-owned

holding companies

(SOHCs)

Leviathan as a minority

investor

Partially privatized firms

(PPFs)

Minority stakes under

state-owned holding

companies (SOHCs)

Loans and equity from

state-owned and

development banks

Sovereign wealth funds

Other state-controlled

funds (e.g. pension funds,

life insurance companies).

Privately-

owned

firms

Reforms also

reinforced new

models of state

capitalism

GOVERNANCE REFORMS AND THE RISE OF

LEVIATHAN AS A MAJORITY INVESTOR

Federal level State level

Number of SOEs 47 49

Number of listed SOEs

6

16

Total assets of SOEs (US$ million)

$625,356

$66,152

% of total assets held by listed SOEs

58.3%

67.8%

Top listed SOEs, by assets

Banco do Brasil (banking)

Petrobras (oil)

Eletrobras (electricity)

Banco do Nordeste

(banking)

Banco da Amazônia

(banking)

Cesp (electricity)

Banrisul (banking)

Sabesp

(water/sewage)

Cemig (electricity)

Copel (electricity)

Source: Compiled based on data from the Securities and Exchange Commission of Brazil and the Department of

Coordination and Governance of State-owned Enterprises (DEST), Ministry of Planning. Total assets include only firms

with direct stakes by the government.

THE LEVIATHAN AS A MAJORITY INVESTOR MODEL: SOME CASES

OF NATIONAL OIL COMPANIES (NOCs)

Statoil (Norway)

Petrobras (Brazil)

Pemex (Mexico)

CEOs/incentives

CEO selected by Board Board (influenced by President of Brazil)

President of Mexico

Do CEOs usually change after presidential elections

No In 3 out of 7 elections Yes

CEO compensation has pay-for-performance component

Yes Yes No

Financials/transparency

Autonomous budget Yes No, some investments need

gov't approval No, some investments

need gov't approval

Listed? Yes Yes No

Main institutional investors Norwegian national

insurance fund Local pension funds, Black

Rock Bondholders & Ex-Im

Bank

Regulation

Norwegian Petroleum

Directorate (NPD), reporting

to the Ministry of Petroleum

and Energy, de facto independent

National Oil Agency (ANP),

linked to the Ministry of

Mines and Energy.

However, influenced by the government

National Carbohydrates

Commission (CNH in

Spanish), a decentralized

agency linked to the

Ministry of Energy (SENER)

Source: Adapted from Pargendler, Musacchio and Lazzarini (forthcoming). Compiled from the companies’ websites and from questionnaires sent to Pemex.

YET, ESCALATING POLITICAL INTERFERENCE AT

PETROBRAS AFTER 2012 (e.g. GASOLINE PRICES)...

50

60

70

80

90

100

110

120

130

140

01/0

2/12

01/1

7/12

02/0

2/12

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7/12

03/0

7/12

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01/0

3/14

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4/14

PETROBRAS

IBOVESPA

THE MINORITY INVESTOR MODEL: BNDES

BNDES

IDB World KDB KfW

(Brazil) Bank (Korea) (Germany)

Total assets (US$ bi) 330.4 87.2 428.3 123.3 591.4

Equity (US$ bi) 39.7 21 165.8 17.3 21.2

Profit (US$ bi) 6 0.3 1.7 1.4 3.5

New loans (US$ bi) 101.4 10.3 26.3 n.a. 113.1

Total outstanding loans (US$ bi) 218.1 63.0 233.6 63.6. 571.1

Size of staff 2,982 ~2,000 ~10,000 2,266 4,531

Return on equity (%) 15.1 1.4 1.0 8.1 16.5

Return on assets (%) 1.8 0.3 0.4 1.1 0.6

Profits per employee 2 ~0.2 ~0.2 0.6 0.8

Assets/equity 8.3 4.2 2.6 7.1 28

Assets (US$ mi) per employee 110.8 43.6 42.8 54.4 130.5 Source: based on Torres Filho (2009), with updated information from the banks’ annual reports.

OVER TIME BNDES REFOCUSED ON PRIVATE FIRMS

Source: Musacchio and Lazzarini (2014)

BNDES AS A MINORITY SHAREHOLDER: THE CASE

OF VALE (BRAZILIAN MINING FIRM)

Vale’s pyramid in 2009. Percentages refer to voting shares.

Funcef Petros Funcesp Previ Opportunity Cidade de

Deus Part.

Espírito

Santo

Mitsui Eletron Bradespar Litel União Federal

18,2% 21,2% 49%

VALE

Valepar BNDESPar 11,5%

53,9% Furthermore, the government

has “golden shares” and

regulates the industry (e.g.

royalties)

BNDES AS A MINORITY SHAREHOLDER

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

10

20

30

40

50

60

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pe

rcen

tage o

f eq

uityN

um

be

r o

f fi

rms

Firms with direct or indirect stakes

Firms with direct stakes

Average direct holding as a percentage of total equity

Source: Created based on data presented in Musacchio and Lazzarini (2014). Note: Indirect stakes occur when BNDESPAR buys a company that is part of a pyramidal ownership structure; that is, when it owns a company that, in turn, is a shareholder in another corporation (e.g., BNDES owns Valepar, which in turn owns Vale).

THE INVESTMENT ARM OF BNDES (BNDESPAR)

BECAME AN IMPORTANT SOURCE OF REVENUE

Source: Musacchio and Lazzarini (2014)

-20

-15

-10

-5

0

5

10

15

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bil

lio

ns

of

rea

is o

f 2

00

9

Loan operations Equity and other investments

Exchange rate operations Inflation indexation

EVIDENCE ON MINORITY STAKES BY BNDES (1995-2009)

ROA is the dependent variable.

Minority state equity is measured as…

Direct or indirect stakes (dummy) Direct stakes only (percentage) Stake > 0% Stake ≥ 10%

(1) (2) (3) (4) (5) (6) Hypothesized effects

Minority 0.111** 0.003 0.009** 0.004*** 0.003 0.183*** (0.055) (0.039) (0.004) (0.002) (0.047) (0.060)

Minority×Group -0.131** -0.041 -0.012*** -0.007** -0.070 -0.233*** (0.061) (0.045) (0.005) (0.003) (0.057) (0.080)

Controls Group 0.124** 0.101 0.116** 0.096 0.091 0.091 (0.051) (0.079) (0.050) (0.096) (0.092) (0.097) Ln(Revenues) 0.078*** 0.027** 0.079*** 0.032*** 0.030*** 0.034*** (0.025) (0.013) (0.025) (0.011) (0.011) (0.012)

Leverage -0.012 -0.387*** -0.012 -0.380*** -0.388*** -0.360***

(0.008) (0.057) (0.008) (0.056) (0.055) (0.055)

Fixed assets -0.280** -0.223** -0.281** -0.225** -0.200** -0.256***

(0.115) (0.090) (0.115) (0.091) (0.096) (0.091) Foreign control 0.035 -0.029 0.031 -0.038 -0.047 -0.018 (0.033) (0.027) (0.034) (0.037) (0.039) (0.041) State control 0.01 -0.019 -0.003 -0.073 -0.070 -0.080 (0.046) (0.063) (0.055) (0.078) (0.075) (0.079) Merger -0.019 -0.031 -0.007 -0.081 -0.090 -0.077 (0.045) (0.051) (0.046) (0.060) (0.064) (0.064) Year, firm, firm–industry fixed effects

Yes Yes Yes Yes Yes Yes

With propensity score matching No Yes No Yes Yes Yes

N (total observations) 2,920 1,169 2,919 1,194 2,919 1,194 N (number of firms) 367 128 367 130 130 130 p (F-test) < 0.001 < 0.001 < 0.001 < 0.001 < 0.001 < 0.001 Source: Inoue, Musacchio and Lazzarini (2013)

THE POSITIVE EFFECT OF MINORITY STAKES WAS

HOWEVER REDUCED AS CAPITAL MARKETS IN

BRAZIL DEVELOPED...

BNDES AS A LENDER

Source: Source: Created based on original data from the Central Bank of Brazil

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%Ju

n-0

0

No

v-0

0

Ap

r-0

1

Sep

-01

Feb

-02

Jul-

02

De

c-0

2

May

-03

Oct

-03

Mar

-04

Au

g-0

4

Jan

-05

Jun

-05

No

v-0

5

Ap

r-0

6

Sep

-06

Feb

-07

Jul-

07

De

c-0

7

May

-08

Oct

-08

Mar

-09

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

De

c-1

2

May

-13

BNDES credit operations/GDP (%) BNDES credit/total credit to the private sector (%)

Gross fixed capital formation/GDP (%)

“NATIONAL CHAMPIONS”

Percentage of total loans in the database

Company In 2004 In 2009

Petrobras (oil) 14.5 39.4

Telemar Norte Leste (telecom) 10.4 7.7

Vale do Rio Doce (mining) n.a. 8.5

Suzano (paper & energy) 3.4 2.6

Brasil Telecom n.a. 3.2

Neoenergia (electricity) 3.2 2.5

CPFL Energia (electricity) 6.8 n.a.

VBC Energia (electricity) 2.7 2.0

CSN (steel) 4.2 2.3

Klabin (paper) 1.3 2.1

Aracruz (cellulose) 2.4 n.a.

Cesp (electricity) 11.2 n.a.

Sadia (food and agribusiness) 3.2 n.a.

CPFL Geração (electricity) n.a. 2.1

Embraer (airplanes) n.a. 1.4

Source: Musacchio and Lazzarini (2014), using the database employed by Lazzarini et al. (2012).

DO BNDES LOANS IMPROVE PERFORMANCE AND

INVESTMENT? ECONOMETRIC EVIDENCE

In general: inconclusive.

Ottaviano and Sousa (2007): some lines positively affect

productivity, other lines have a negative effect.

Sousa (2010): overall null effect on productivity.

Coelho and De Negri (2010) larger effect on more productive

firms.

De Negri et al. (2011) effect of loans on employment and the

extent of exports, but not on productivity.

Pereira, Simões and Carvalhal (2011): subsidized loans have

positively affected investment (aggregated data).

Lazzarini, Musacchio, Bandeira-de-Mello and Marcon (2012):

no effect on firm-level performance or investment, except for

a reduction in financial expenditures due to credit subsidies

(2002-2009, publicly traded firms).

CONCERNS ON BNDES

Credit Misallocation

– Literature on state-owned banks: misallocation problem involves funding of

bad firms (e.g. Bailey et al., 2011 in China).

– Here: the bank is probably transferring credit to a substantial set of firms

that would not need subsidized credit in the first place.

Selection of “Champions”

– Lack of clear criteria; and some evidence on the role of political connections

(Lazzarini et al., 2012; Sztutman and Aldrighi, 2013).

– Policy of champions apparently abandoned after 2012; with new emphasis

on state-controlled firms.

Soft-budget Constraints and Bailouts

– Very low index of nonperforming loans; and no systematic selection of bad

firms.

– Yet bailouts do occur from time to time especially through convertible bonds

(e.g. JBS in 2011)

Residual Interference in the Target Firms

– Especially when there is collusion of minority owners and firm-level rents.

Example: Vale (BNDES + pension funds).

CONCLUSIONS AND LESSONS (1/2)

The model of Leviathan as an entrepreneur was ubiquitous in the early

development of Brazil. Yet, some development and private capital

markets were already in place before 1930 (e.g. Musacchio, 2009).

SOEs were also used to control macroeconomic distortions (such as

high inflation or unemployment), which not only undermined their

performance but also created uncertainty for private investment.

Thus, not clear what would have happened if the state acted in a more

selective way, emphasizing projects with positive externalities and “self

discovery,” leaving room for a diversified and competitive private sector

to thrive.

SOEs with more autonomous governance and external orientation

apparently performed better; yet, autonomy led to empire building.

CONCLUSIONS AND LESSONS (2/2)

Reforms and privatizations led to the emergence of the models of

Leviathan as a majority investor and Leviathan as a minority investor.

The former involved governance reforms in SOEs but has not

completely eliminated the risk of intervention. There is need of

sophisticated capital markets and independent regulatory bodies.

The model of Leviathan as a minority investor was reinforced especially

through BNDES (equity and loans). When it acted as a minority

shareholder, highest impact was observed in the case of standalone

firms with constrained opportunity. Progressive exit is recommended

as capital markets develop.

The effect of loans is rather inconclusive. Apparently there is a

probably of credit misallocation involving firms that get subsidies

without substantially changing investment. There should be more

emphasis on small firms and projects with positive externalities (e.g.

Chile’s CORFO).

THANK YOU!

amusacchio@hbs.edu

sergiogl1@insper.edu.br

ANCILLARY SLIDES

PETROBRAS: 1980 vs 2012

CORPORATE GOVERNANCE AND PERFORMANCE

OF NOCs

Governance Index: Based on whether (1) some of the equity of the NOC has been privatized ; (2) the government is a minority shareholder ; (3) there are independent board members; (4) independent board members have a simple majority on the board of directors; (5) there are no government officials holding board seats; (6) the chairman is an external board member; (7) the firm has budgetary autonomy; (8) the company’s financials are audited by a private auditing firm.

Fixed investment is the dependent variable.

Minority state equity is measured as…

Direct or indirect stakes (dummy) Direct stakes only (percentage) (1) (2) (3) (4) Hypothesized effects

Constrained opportunity ×Minority

53.032 21.657 7.114*** 3.767** (48.268) (13.371) (1.697) (1.641)

Constrained opportunity ×Minority×Group

-52.350 -18.091 -7.113*** -3.710** (48.084) (13.544) (1.693) (1.659)

Controls Minority 5.732 3.433 0.502 0.284 (3.927) (3.603) (0.402) (0.381) Minority×Group -5.906 -5.079 -0.651 -0.438 (3.889) (3.897) (0.401) (0.373) Constrained opportunity -1.968 -2.706 -2.452* -3.566* (1.457) (1.657) (1.341) (1.875) Group -0.077 -3.133 -1.014 -5.859 (1.008) (2.974) (1.008) (3.863)

Constrained opportunity ×Group

1.48 0.317 1.591 0.263 (1.761) (2.372) (1.444) (2.890)

Ln(Revenues) -0.768 -2.252** -1.207* -2.278** (0.698) (1.106) (0.661) (0.954) Leverage -0.002 -6.641 -0.001 -1.387 (0.031) (4.296) (0.029) (3.641) Fixed assets -4.689 2.92 -1.477 7.852 (5.837) (8.051) (3.300) (12.527) Foreign control 2.677 2.907 3.882 4.447* (2.273) (2.214) (2.487) (2.599) State control -5.127 -6.810 -0.773 -4.805 (6.091) (6.546) (1.498) (4.237) Merger 0.313 -5.968 0.116 -5.649 (1.411) (3.725) (1.453) (3.799) Year, firm, firm–industry fixed effects Yes Yes Yes Yes With propensity score matching No Yes No Yes N (total observations) 1,970 861 1,969 878 N (number of firms) 314 122 314 124 p (F test) < 0.001 < 0.001 < 0.001 < 0.001

Source: Inoue, Musacchio and Lazzarini (forthcoming)

IF NOT BASED ON MARKET FAILURE CONSIDERATIONS,

CREDIT MISALLOCATION: STATE BANKS MAY END UP

TRANSFERING SUBSIDIES TO LARGE FIRMS THAT COULD

RAISE CAPITAL ELSEWHERE…

ROA EBITA/assets Tobin’s q Finex/assets Capex/assets Fixed/assets

Firm is observed with 0.021 0.052 -0.108 -0.148** 0.001 -0.018

with BNDES loan [0.048] [0.049] [0.241] [0.052] [0.022] [0.032]

Belongs to a group -0.158 -0.151 -0.006 -0.026 -0.025 -0.020

[0.096] [0.078] [0.682] [0.082] [0.019] [0.096]

Ln(Assets) 0.062 0.073 -0.204 -0.170 0.067 0.150**

[0.080] [0.079] [0.467] [0.133] [0.033] [0.050]

Leverage -0.256 -0.145 0.283 -0.101 -0.084 -0.249

[0.162] [0.148] [1.051] [0.259] [0.117] [0.129]

Fixed -0.154 -0.041 -1.022 0.807 -0.101

[0.161] [0.177] [1.450] [0.439] [0.212]

Foreign 0.148 0.138 -0.512 -0.048 -0.029 -0.037

[0.091] [0.074] [0.627] [0.047] [0.027] [0.087]

Fixed effects

Firm Y Y Y Y Y Y

Year Y Y Y Y Y Y

Industry-year Y Y Y Y Y Y

N (total) 260 260 260 146 251 260

p (F test) < 0.001 < 0.001 < 0.001 < 0.001 < 0.001 < 0.001

p < 0.10 * p < 0.05 ** p < 0.01 *** p < 0.001. Robust standard errors in brackets, clustered on each firm. Regression

weights come from propensity matching score (kernel) estimation on the observed variables for the initial year of the sample

(2002). Fixed-effect regressions are restricted to regions of common support.

AN INCREASINGLY IMPORTANT SOURCE OF

REVENUE FOR THE GOVERNMENT

Source: Afonso e Barros (2013)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Divid

en

ds d

ivide

d b

y total go

vern

me

nt re

ven

ue

sSo

urc

e o

f d

ivid

en

ds,

pe

rce

nta

ge

Petrobras and Eletrobras BNDES Other Dividends/total revenues

IN ADDITION, RETURNS FROM THE EQUITY

BUSINESS ARE FALLING...

-0.3%

-2.1%

-17.9%

7.4%

-15.5%

-12.4%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

BNDESPAR IBOVESPA

Estimated variation in the market cap of BNDESPAR’s portfolio of large firms.

Source:: BNDESPAR, annual reports. * 2014 data until mid March, 2014.

2012

2013 2014*

BNDES: PERFORMANCE IN THE LOAN BUSINESS

Source: Calculated by Musacchio and Lazzarini (2014) with data from (BNDES 1953-2010). Returns are calculated as profits from BNDES’s investment portfolio (carteira de participações)—mostly through BNDESPAR—over the stock of such investments. All data was deflated using the IGP-DI index.

Between 2005 and 2009, the difference between the net

interest margin of loans and the SELIC rate was, on

average, -7.6%, which is close to the difference between

the TJLP and the SELIC in the same period (-6.7%).

Thus, BNDES pays around 7.6 cents per each dollar

loaned