Abstract
The aim of this paper is to investigate the choice between debt and equity simultaneously with the decision between short- and long-term debt for a large sample of emerging markets from Latin America. In order to do this, we test a model (BARCLAY; MARX; SMITH JR., 2003) of joint capital structure and debt maturity determination for a sample of 986 firms from Latin America in the period 1990-2002, employing the Generalized Method of Moments on a system of equations. The empirical results support three main findings. First, capital structure and debt maturity are financial policy complements in Latin America. Second, there is a substantial dynamic component in the determination of debt maturity that has been neglected by previous research. Finally, firms face moderate adjustment costs towards their optimal maturity. Results are robust to variation in sample composition in terms or countries, industries, and years.
Highlights
Since the breakthrough work of Modigliani and Miller (1958, MM) on capital structure, corporate financial theory has furthered our understanding of a range of financial decisions: the choice between debt and equity, the design of a payout policy, the use of convertible instruments, and the management of financial risks, among others
The aim of this paper is to investigate the choice between debt and equity simultaneously with the decision between short- and long-term debt for a large sample of emerging markets from Latin America
The aim of this paper is to investigate the choice between debt and equity simultaneously with the decision between short-and long-term debt for a large sample of firms from Latin America
Summary
MM) on capital structure, corporate financial theory has furthered our understanding of a range of financial decisions: the choice between debt and equity, the design of a payout policy, the use of convertible instruments, and the management of financial risks, among others. In their influential paper and the ones that followed (MILLER; MODIGLIANI, 1961; MODIGLIANI; MILLER, 1963; MILLER, 1977), these authors laid down the conditions under which the firm would be largely indifferent to the sources of its financing. It may be the case that some of these decisions are not independent but complements or substitutes among each other. If that is the case, we must investigate whether there is interdependence among them or not
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