The role of covenants in financing decisions and the adjustment speed of capital structure of Brazilian listed companies

• Grant number: 20/05717-4
• Support Opportunities: Regular Research Grants
• Start date: August 01, 2020
• End date: July 31, 2022
• Field of knowledge: Applied Social Sciences - Administration - Business Administration
• Principal Investigator: Tatiana Albanez
• Grantee: Tatiana Albanez
• Host Institution: Faculdade de Economia, Administração e Contabilidade (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil
• Associated researchers: Rafael Felipe Schiozer

Abstract

According to the trade-off theory, companies have a debet target level to be adjusted gradually, seeking to maximize its value. However, the presence of adjustment costs may be responsible for the gap between the current capital structure and the optimal structure for a given company. The issue of adjustment costs can be examined in different ways. This paper aims to analyze the relationship between covenants and the speed of adjustment of the capital structure. Covenants are present in most debt contracts and can transfer the firm's control rights to creditors, directly affecting its financing and investment policies. As a main objective, we intend to examine how the presence of restrictive clauses in debt contracts affect the financing decisions of Brazilian public companies, as well as the speed of adjustment to the target level of the capital structure of these companies. This discussion is relevant, given the widespread use of covenants by creditors in debt contracts of Brazilian companies aimed at reducing agency costs. It is expected to contribute to the literature of the area, as well as to the various agents of the capital market. Furthermore, at the present time, when the economy is being highly impacted by the coronavirus pandemic, it is expected that companies will overcome many of the signed covenants, bringing up a great wave of contract renegotiations, the waivers. Thus, as a secondary objective, it is intended to draw a panorama of the occurrence of waivers and its implications on the capital structure decisions of companies. No national studies were found investigating the proposed issues. (AU)

Scientific publications

(References retrieved automatically from Web of Science and SciELO through information on FAPESP grants and their corresponding numbers as mentioned in the publications by the authors)

TATIANA ALBANEZ; RAFAEL FELIPE SCHIOZER. Concentração de Propriedade e Outros Determinantes da Presença de Covenants em Contratos de Dívida de Companhias Listadas na B3. BBR. Brazilian Business Review, v. 19, n. 4, p. 372-395, 2022-09-09. (20/05717-4)

ALBANEZ, TATIANA; SCHIOZER, RAFAEL. The signaling role of covenants and the speed of capital structure adjustment under poor creditor rights: Evidence from domestically and cross-listed firms in Brazil. JOURNAL OF MULTINATIONAL FINANCIAL MANAGEMENT, v. 63, p. 16-pg., 2022-03-01. (20/05717-4)