The relationship of monitoring and transparency with the number of covenants in the debenture contracts
Name: FABRICIO CONCEIÇÃO DAS NEVES
Publication date: 03/05/2017
Advisor:
Name |
Role |
|---|---|
| PATRÍCIA MARIA BORTOLON | Advisor * |
Examining board:
| Name |
Role |
|---|---|
| CLÁUDIO MÁRCIO PEREIRA DA CUNHA | Internal Examiner * |
| PATRÍCIA MARIA BORTOLON | Advisor * |
Summary: This study aims to test the relation between monitoring and transparency mechanisms with the number of restrictive covenants that, if violated, lead to technical default of the bond. The theory shows that higher monitoring levels and higher transparency levels leads bond issued with less covenants. This happens because monitoring and transparency prevents the risk that covenants try to protect the bondholder from. In order to reach the objective, 227 contracts of 133 companies, issued from 2011 to 2015 were analyzed. The monitoring and transparency test was constructed based on governance index made by Bortolon and Da Silva Junior (2015) and IBGC (2014). As control variables, the study used variables related to contracts (series, issue, incentive, exemption, guarantee and deadline) and related to the companies (size, control, profitability, debt level, ratio of voting rights to cash flow rights and risk). To measure the relation between the monitoring and transparency mechanisms with the number of bond covenants, mean difference test and binomial negative regression were used. The results show that companies with more transparency mechanisms generally have a lower number of covenants, while the relation of monitoring with the number of covenants diverges from prior expectation. The effect of Cross monitoring, in which the monitoring is done by other stakeholders, in total number of covenants may be the reason for the results being different than expected.
Keywords: Covenants. Monitoring. Transparency. Debt bonds
