Economic volatility, high transaction costs, and fragile institutions hinde
r financial contracting in emerging markets. These conditions characterize
the economy of Brazil, yet a nascent corporate bond marker thrives. I analy
ze 50 Brazilian indenture agreements and find that sample debentures are ch
aracterized by (i) features that mitigate inflation risk for investors, (ii
) contingent-maturity mechanisms that provide periodic opportunities for ex
it or renegotiation, (iii) a paucity of covenants that restrict the debtor'
s investment, financing, and dividend decisions, and(iv) self-enforcement m
echanisms that avoid reliance on inefficient institutions. Analysis of thes
e features enhances our understanding of contracting in emerging economies.
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