Subsidized debt, corporate governance, and ownership concentration of Brazilian firms

Abstract

Purpose – This paper evaluates the influence of corporate governance and ownership concentration on subsidized financing in Brazil. Theoretical framework – The effect of governance and ownership concentration on subsidized debt is analyzed from the perspective of agency conflicts (Agency Theory) and company behavior in relation to debt (Trade off and Pecking Order Theories). Design/methodology/approach – Corporate governance is approximated by an index and presence on the Novo Mercado. Models are estimated by FGLS and Logit for a panel with 1387 annual observations of 147 companies with more liquidity on B3 in the period 2010-2019. Findings – Ownership concentration has a positive quadratic relationship with subsidized debt, which was not sensitive to corporate governance. There is a preference for subsidized debt by managers in companies with low ownership concentration and by controlling shareholders in companies with high concentration. The more lenient monitoring from subsidized debt’s creditor may be an explanatory factor. In addition, companies with high ownership concentration face difficulties for share issuance and consider it uninteresting. All that leads these firms to intensify debt raising. Practical & social implications of research – It may be interesting for the government strengthening the analysis of corporate governance aspects in the assignment of subsidized credit. Originality/value – The recent evolution and the determinants of subsidized debt in Brazil are analyzed under the agency conflicts approach. This is an innovative approach that takes into account the specialization of debt composition and an important funding source.