Interactions between corporate governance, bankruptcy law and firms' debt financing: the Brazilian case

This paper examines the relationship between corporate governance level and the bankruptcy law for such debt variables as firms' cost of debt and amount (and variation) of debt. Our empirical results are consistent with the model's prediction. First, we find that the better the corporate g...

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Bibliographic Details
Published in:BAR, Brazilian administration review Brazilian administration review, 2008-07, Vol.5 (3), p.245-259
Main Authors: Funchal, Bruno, Galdi, Fernando Caio, Lopes, Alexsandro Broedel
Format: Article
Language:English
Subjects:
bankruptcy
Bankruptcy laws
Borrowing
Corporate governance
cost of debt
debt
Debt financing
Expected values
Insolvency
Interest rates
MANAGEMENT
Moral hazard
Solvency
Studies
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Summary:This paper examines the relationship between corporate governance level and the bankruptcy law for such debt variables as firms' cost of debt and amount (and variation) of debt. Our empirical results are consistent with the model's prediction. First, we find that the better the corporate governance, the lower the cost of debt. Second, we find that better corporate governance arrangements relate to firms with higher amounts of debt. Finally we find that better governance and harsher bankruptcy laws have a positive effect on debt. Moreover, this effect is stronger for firms with worse corporate governance, which indicates that the law works as a substitute for governance practices to protect creditors' interests. Key words: debt; cost of debt; corporate governance; bankruptcy.
ISSN:1807-7692
1807-7692
DOI:10.1590/S1807-76922008000300006