Structural Changes in Covenants Through the Adoption of IFRS in Brazil

Accounting Forum, Volume 41, Issue 3, September 2017, Pages 147-160

Posted: 27 Oct 2017

See all articles by Aziz Beiruth

Aziz Beiruth

Independent

Luiz Paulo Fávero

University of São Paulo (USP)

Fernando Murcia

FEA-USP

Jose Elias Feres de Almeida

Federal University of Espirito Santo (UFES)

Talles Brugni

Pontifical Catholic University of Rio de Janeiro (PUC-Rio); FEA-USP

Date Written: September 1, 2017

Abstract

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.

Keywords: Finance, Covenants, Credit Market, IFRS

JEL Classification: M40, M41, K12

Suggested Citation

Beiruth, Aziz and Fávero, Luiz Paulo and Murcia, Fernando and Almeida, Jose Elias Feres de and Brugni, Talles, Structural Changes in Covenants Through the Adoption of IFRS in Brazil (September 1, 2017). Accounting Forum, Volume 41, Issue 3, September 2017, Pages 147-160, Available at SSRN: https://ssrn.com/abstract=3060028

Luiz Paulo Fávero

University of São Paulo (USP) ( email )

Av. Prof. Luciano Gualberto, 908 - FEA 1
São Paulo - SP, São Paulo 05508900
Brazil
55 11 30916045 (Phone)

Fernando Murcia

FEA-USP ( email )

Av. Prof. Luciano Gualberto 908
São Paulo SP, São Paulo 05508-900
Brazil

Jose Elias Feres de Almeida

Federal University of Espirito Santo (UFES) ( email )

Av. Fernando Ferrari, n. 514, Goiabeiras
Centro de Ciências Jurídicas e Econômicas
Vitoria, Espírito Santo 29075-910
Brazil
+5527992248737 (Phone)

Talles Brugni

Pontifical Catholic University of Rio de Janeiro (PUC-Rio)

Rua Marquas de Sao Vicente, 225
Rio De Janeiro, RJ 22453-900
Brazil

FEA-USP ( email )

Av. Prof. Luciano Gualberto 908
São Paulo SP, São Paulo 05508-900
Brazil

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