Effect of the Firm Life Cycle in the Relationship between Quality of Corporate Governance and Cost of Debt of Public Companies in Brazil

Objective: We investigate the effect of the life cycle stage on the relationship between the corporate governance quality and the cost of debt of public companies in Brazil. Method: The corporate governance quality was measured using an index (CGI) composed of 9 items and the cost of debt was captured directly from the explanatory notes of the financial statements. The analysis included 49 non-financial companies included in the IBrX-100 between 2010 and 2019, with the help of panel data regressions. Originality/Relevance: The study innovates by exploring the moderating effect of the life cycle stage of firms on the relationship between corporate governance and cost of debt, demonstrating that this association is more important in the Turbulence and Decline stages. Results: The average cost of debt was 7.64% p.a., lower than the averages shown in previous studies in the Brazilian context, being more in line with market practices. The findings demonstrate that governance is more important in reducing the cost of debt for companies in the Turbulence and Decline stages, revealing that the company's life cycle matters for this relationship. Theoretical/Methodological contributions: The study demonstrates that the cost of debt is not adequately represented by the aggregate of the item "Financial Expenses" in the company's financial statements, that the credit market tends to include governance in determining the cost of capital, and that the life cycle it is especially important for lowering the cost of debt for riskier companies in the Turbulence and Decline stages.