The Relationship between Cost of Debt Financing and Corporate Governance in Brazil

This paper examines the relationship between corporate governance and the cost of third-party debt of the Brazilian companies listed on the BM&FBOVESPA. The hypothesis tested is that the average cost of debt financing of companies having instruments of Corporate Governance is lower. The study carried out was quantitative, descriptive and hypothetical-deductive in nature. The sample utilized in answering the proposed research question consisted of 83 Brazilian companies traded on the BM& FBOVESPA in the period 2008 to 2010. The variable to be explained is the cost of debt and as explanatory variables two proxies of Corporate Governance are used, the Corporate Governance Index (CGI) and respective Differentiated Levels of Corporate Governance recognized by this stock market. Control variables are total leverage, company size and return on assets. Data was examined using univariate, bivariate and multivariate analysis. Findings were consistent with previous international research having Corporate Governance measured by a broad index as the explanatory variable. It is concluded that the adoption of mechanisms of corporate governance can have an impact on reducing the cost of financing of short and long term debt in the Brazilian market.