An Empirical Analysis of the Determinants of Debt Renegotiation in Brazilian Public Companies

An Empirical Analysis of the Determinants of Debt Renegotiation in Brazilian Public Companies

• Author
• João Paulo Augusto Eça
• Co-authors
• Tatiana Albanez
• Abstract

• Companies form contracts with different types of agents. Employees, suppliers, customers, and creditors are examples of agents who establish contractual relationships within a company. These contracts are considered incomplete since it is impossible to specify all the important contingencies that may arise ex-post. Therefore, agents can incorporate contractual mechanisms that allow them to renegotiate the terms of trade in the future, making the renegotiation assume a relevant role in the firms. Specifically concerning debt renegotiation, recent studies have shown important results in the United States and European contexts. Nevertheless, we know little about debt renegotiations in different contexts, such as those found in emerging economies. Therefore, we aimed to to identify the determinants of debt renegotiation in an emerging economy context based on a renegotiation sample of Brazilian companies. The sample comprises all non-financial companies listed on the Brazilian stock exchange (B3). The period of the analysis is from 2010 to 2021. Data on renegotiation are unprecedented, collected manually from the analysis of more than three thousand of notes to financial statements. The results showed that the change in the financial condition of companies (for example, profitability, leverage, size) increases the probability of debt renegotiation for Brazilian companies. Moreover, the results showed that a loss in the firm's ability to pay (reduction of profitability, cash generation capacity and interest coverage ratio) increases the probability of renegotiation having a counterpart. As a contribution, this result expands knowledge about renegotiation in a context that has not been addressed much in previous studies: an emerging market. Furthermore, this study adds to the literature by exploring counterparts in renegotiations, an aspect little explored in the literature, although it is very present in renegotiations. This study also contributes to the literature by addressing renegotiations with bondholders, which is not done by previous studies
   

• Keywords
• Debt Renegotiation, Renegotiation Counterparts, Debt Contracts.
• Subject Area
• Corporate Finance, Intermediation, and Banking

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