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The determinants of debt renegotiation: Evidence from Brazil

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  • Eça, João Paulo Augusto
  • Albanez, Tatiana
  • Schiozer, Rafael Felipe
  • do Valle, Mauricio Ribeiro

Abstract

We investigate factors that affect debt renegotiation in an emerging economy, focusing on Brazil's publicly-listed non-financial firms. We manually collect novel data from more than three thousand notes to financial statements. The results show that the deterioration in the financial condition of companies - marked by declining profitability and increasing leverage - increases the probability of debt renegotiations. Furthermore, our findings reveal that the impairment in a firm's payment capacity, such as reduced profitability, cash flow, and interest coverage heighten the chances of renegotiations incorporating debtholder compensation mechanisms. Our results expand the knowledge about renegotiation to a context that has been scarcely addressed in previous studies: emerging markets. Additionally, it provides novel insights into the use of compensation mechanisms during renegotiations — an aspect little explored in the literature, although very present in renegotiations. We also innovate by addressing renegotiations with bondholders, an aspect largely overlooked in extant literature.

Suggested Citation

  • Eça, João Paulo Augusto & Albanez, Tatiana & Schiozer, Rafael Felipe & do Valle, Mauricio Ribeiro, 2024. "The determinants of debt renegotiation: Evidence from Brazil," The Quarterly Review of Economics and Finance, Elsevier, vol. 95(C), pages 244-255.
    • Handle: RePEc:eee:quaeco:v:95:y:2024:i:c:p:244-255
    DOI: 10.1016/j.qref.2024.04.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Debt renegotiation; Renegotiation compensation; Debt contracts;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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