 The signaling role of covenants and the speed of capital structure adjustment under poor creditor rights: Evidence from domestically and cross-listed firms in BrazilTatiana Albanez and Rafael Schiozer Journal of Multinational Financial Management, 2022, vol. 63, issue C Abstract: This paper studies how covenants affect the speed of capital structure adjustment in Brazil, an environment with poor creditor rights. Unlike previous evidence for developed countries, we find that the existence of debt covenants increases the speed of capital structure adjustment by more than 20% for firms that are only domestically listed. For firms that are cross-listed in the US, this effect is smaller (if any), possibly because these firms “bond” to the stricter regulation and creditor protection of the US market. Our results suggest that in emerging markets with poor creditor protection, covenants are an imperfect substitute for strong creditor rights and employed as a signaling device, permitting firms to adjust their leverage towards optimal levels quicker. Keywords: Optimal capital structure; Creditor rights; Cross-listing; Institutional environment; Speed of adjustment; Adjustment costs; Waivers (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:63:y:2022:i:c:s1042444x21000281 DOI: 10.1016/j.mulfin.2021.100704 Access Statistics for this article Journal of Multinational Financial Management is currently edited by I. Mathur and G. G. Booth More articles in Journal of Multinational Financial Management from Elsevier |
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