Embedded governance in corporate bond indentures: evidence from Brazil, 1998–2001 (*)

Abstract: Corporate bonds have been a major source of medium and long-term financing in Brazil. We analyze how corporate bond covenants have been used to mitigate agency costs between shareholders and bondholders. Our data includes 119 corporate bond indentures issued in Brazil from 1998 to 2001. This paper analyzes whether public investors have demanded stricter terms in corporate bond indentures. When comparing to previous studies of Anderson (1999) and of Filgueira and Leal (2001), we found empirical evidence that: (a) more bond issues with no indexed inflation features, but more floating rate interest features to match market needs; (b) no major changes for contingent maturity features; (c) loose covenants with respect to dividend and financing actions; and (d) tighter covenants regarding change in control and/or ownership and negative pledge. There is empirical evidence that the role of sponsor may partially mitigate risks borne by bondholders.


Citação: SAITO, Richard; SHENG, Hsia Hua; KOSHIO, Senichiro; DUTRA, Marcos Galileu L. Embedded governance in corporate bond indentures: evidence from Brazil, 1998–2001. In: ARBELÁEZ, Harvey; CLICK, Reid William (ed.) Latin American Financial Markets: Developments in Financial Innovations. (International Finance Review, Vol. 5). Bingley: Emerald Group Publishing Limited, 2005, p. 415-437. DOI: https://doi.org/10.1016/S1569-3767(05)05019-3.


(*) uma versão preliminar foi apresentada no 26º Encontro da ANPAD: SAITO, Richard; SHENG, Hsia Hua; KOSHIO, Senichiro; DUTRA, Marcos Galileu L. Embedded governance in corporate bond indentures: evidence from Brazil, 1998–2001. In: 26º Encontro da ANPAD, 2002, Salvador. Resumo dos Trabalhos. Rio de Janeiro: ANPAD, 2002. 1 CD-ROM.


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