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Corporate Governance, Bankruptcy Law and Firms' Debt Financing under Uncertainty

Author

Listed:
  • Bruno Funchal

    (FUCAPE Business School)

  • Fernando Caio Galdi

    (FUCAPE Business School)

  • Paulo C. Coimbra

Abstract

This paper examines the relationship between corporate governance level and the bankruptcy law to such debt variables as firms? cost of debt and amount of debt under uncertainty (in the Knight´s sense). First we find that the better the corporate governance and the harsher bankruptcy law, the lower the cost of debt. Second, we find that better governance and a harsher bankruptcy laws have a positive effect on debt. As consequence, firms increase their set of investment projects financed by creditors. Finally, uncertainty has a negative effect on terms of debt (higher interest rate and smaller set of financed investment projects) and such effect is stronger for firms with worse corporate governance and for economies with a bankruptcy law that is lenient to debtors.

Suggested Citation

  • Bruno Funchal & Fernando Caio Galdi & Paulo C. Coimbra, 2008. "Corporate Governance, Bankruptcy Law and Firms' Debt Financing under Uncertainty," Fucape Working Papers 02, Fucape Business School.
    • Handle: RePEc:bbz:fcpwps:02
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    File URL: http://www.fucape.br/_public/workingpapers/02-2008.pdf
    File Function: Primeira Versão, 2008
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