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
Date Written: September 1, 2017
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: Suggested Citation