If Brazil started the twentieth century with a system of strong investor protections and relatively low ownership concentration, how is it that the corporate landscape in the second half of the century ended up being dominated by large conglomerates with concentrated ownership? This chapter explains the major changes effected in corporate governance and finance during the twentieth century.

The structure of corporate finance in Brazil changed radically after the 1930s and 1940s as banks supplanted the stock and bond markets as the main source of corporate finance. The government created a development bank that provided the bulk of long-term credit and commercial banks focused on short-term lending.

Ownership of large corporations ended up being highly concentrated because either families or the government seized full control of the voting equity (which became relatively easy to do subsequent to the introduction of nonvoting equity in 1932). Brazilian entrepreneurs ended up forming large, diversified conglomerates (grupos) with highly concentrated ownership for strategic reasons that have to do both with economics – they are helpful for overcoming many market failures – and politics – they are influential lobbying machines with sufficient clout to counter the powerful labor unions.

Finally, the government became the largest shareholder in the Brazilian economy, coming to control after World War I, and especially after World War II, the largest companies in the country by both bailing out existing companies (e.g., railways) and promoting the creation of state-owned enterprises (e.g., steel mills, mining companies, chemical plants, and banks).