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Structural changes in covenants through the adoption of IFRS in Brazil

2017; Taylor & Francis; Volume: 41; Issue: 3 Linguagem: Inglês

10.1016/j.accfor.2017.06.004

1467-6303

Aziz Xavier Beiruth, Luíz Paulo Lopes Fávero, Fernando Dal-Ri Múrcia, José Elias Feres de Almeida, Talles Vianna Brugni,

Financial Distress and Bankruptcy Prediction

This study examines changes in the structure of covenants in debt agreements of companies issuing debentures during the adoption of International Financial Reporting Standards (IFRS) in Brazil. We investigate debt contracts of public and private companies that issued debentures before and after IFRS adoption in Brazil, between the years 2006–2008 and 2011–2014. We develop a database with all covenants from 126 contracts via hand-collected data, with 78 contracts from before IFRS adoption and 48 contracts afterward. We find high increases in covenants after adoption. However, this growth is observed only for restrictive security and non-accounting covenants, excluding clauses with accounting multiples. Our results show that IFRS adoption in Brazil shifted incentives and, as a result, shaped a new structure of debt contracts. Our findings complement and expand previous studies and can be useful to academics, regulators and practitioners by showing that the incentives to use accounting figures and ratios shifted in the credit market after IFRS adoption.