The Role of Bond Covenants and Short-Term Debt: Evidence from Brazil
| Autor | Vinícius Augusto Brunassi Silva - Richard Saito - Fernando Carvalhaes Barbi |
| Cargo | Fundação Getúlio Vargas, EAESP/FGV - Fundação Getúlio Vargas, EAESP/FGV - Fundação Getúlio Vargas, EESP/FGV |
Available online at
http://www.anpad.org.br/bar
BAR, Rio de Janeiro, v. 10, n. 3, art. 5,
pp. 323-346, July/Sept. 2013
The Role of Bond Covenants and Short-Term Debt: Evidence
from Brazil
Vinícius Augusto Brunassi Silva
E-mail address: vinicius.vitio@gmail.com
Fundação Getúlio Vargas – EAESP/FGV
Rua Ulisses Cruz, 527, apto. 82, bloco B, 03077-000, São Paulo, SP, Brazil.
Richard Saito
E-mail address: richard.saito@fgv.br
Fundação Getúlio Vargas – EAESP/FGV
Av. Eng. Luis Carlos Berrini, 1500/42, 04571-011, São Paulo, SP, Brazil.
Fernando Carvalhaes Barbi
E-mail address: fcbarbi@gmail.com
Fundação Getúlio Vargas – EESP/FGV
Rua Itapeva, 474, 01332-000, São Paulo, SP, Brazil.
Received 17 May 2012; received in revised form 30 January 2013 (this paper has been with the
authors for three revisions); accepted 8 February 2013; published online 1st July 2013.
Editor’s note. Ricardo Pereira Câmara Leal served as Associate Editor for this article.
V. A. B. Silva, R. Saito, F. C. Barbi 324
BAR, Rio de Janeiro, v. 10, n. 3, art. 5, pp. 323-346, July/Sept. 2013 www.anpad.org.br/bar
Abstract
This paper examines the role of financial covenants as substitutes for short-term debt and a possible trade off
between short-term debt and long-term debt, especially for companies with growth opportunities. Using a sample
of 159 corporate bonds issued on the Brazilian Market, we found evidence that: first, financial covenants and
short-term debt are substitute tools to minimize agency conflict, as per literature confirming that stronger
financial covenants could limit the possible expropriation of debt holders and in exchange debt holders may be
willing to lend at longer terms and; second, companies with growth opportunities are willing to exchange short-
term debt for long-term debt under the presence of covenants. Most importantly, this does not seem to be a
restriction for financing growth opportunities.
Key words: covenants; agency conflict; short-term debt; growth opportunities and leverage.
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