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Сovenants` Impact in Corporate Bonds` Prospectuses on the Cost of Debt in BRICS Countries
This evidence about how the use of covenants in the bond contract affects the cost of debt by using a sample of firms from BRICS countries. I find significant benefits in terms of reduction in the cost of debt associated with covenants. Restrictions on operational and investment activities or financial restrictions reduce the cost of debt by about 31–43 basis points. These findings suggest that investors view bond covenants as important instruments in mitigating agency problems.