Excess control rights: a study about its reflex on the cost of debt of publicly traded Brazilian companies

Abstract

This study analyzes the effect of excess control on the cost of debt in publicly traded Brazilian companies. Its objective is to determine whether a higher misalignment between voting rights and cash flow rights held by controlling shareholder causes an increase in agency cost of debt. For the analysis of the research problem, it was used panel data regression with random effects, in which was compared the level of excess control and the firms cost of debt. The results indicate that there is a positive and statistically significant association between excess control and the cost of debt. This suggests that creditors interpret this misalignment as a control entrenchment, which increases the credit risk, and thereby, increases the cost of debt. From the scientific point of view, the contribution to the literature provided by this study is the finding that ownership structure bears an impact in the creditor perceptions of risk, and thus, the cost of debt. These results can assist in developing actions to reduce the cost of debt, which implies the maximization of the economic performance of firms that have third-party capital in its capital structure. Its social contribution is the distinction of the firms exposed to a higher level of cost of debt, identifying ways to maximize resources, that is a relevant aspect especially in times of crisis whose effects can be very varied, such as bankruptcies, massive layoffs and default.