Capital structure management differences in Latin American and US firms after 2008 crisis

Santiago Valcacer Rodrigues,David Ferreira Lopes Santos,Heber José De Moura,Vinicius Amorim Sobreiro

doi:10.1108/jefas-01-2017-0008

Abstract

PurposeThis paper aims to analyse the capital structure determining factors of Latin American and US corporations after the crisis of 2008, as a means of comparing theoretical assumptions and empirical results in markets of different efficiency levels.Design/methodology/approachThe study sample comprises 1,091 companies belonging to the six largest economies in Latin America plus the USA, in the years 2009 to 2013. The authors performed a regression with data from a balanced overview, which were obtained by using the criterion of minimum weighted square.FindingsThe results demonstrated differences in determining factors of capital structure between companies from Latin America and from the USA. The pecking order theory was mostly observed in Latin American companies and the trade-off theory greater was closely aligned with US firms.Originality/valueThis research brings new contributions to the issue, once the differences and determinative of the debt profile in companies from different economic contexts are compared.

Highlights

IntroductionFrom the studies by Durand (1952), Hirshleifer (1958), Lintner (1956), Markowitz (1952) and Modigliani and Miller (1958, 1963), several empirical studies have been performed in an attempt to understand the influence of capital structure on firm value since the 1950s (Ardalan, 2017; Milanesi, 2014; DeAngelo and Roll, 2015; Chakraborty, 2010)
For Chile, besides the pecking order, the trade-off strongly influences the capital structure It provided empirical support for previous studies of which tangibility of assets, profitability, IR payment and size were statistically significant for the sample of companies in Latin America The results of partial adjustment model suggest that capital structure is, to certain extent, determined by country idiosyncrasies, as well as company-specific factors
Brazilian companies, followed by Mexican and Chilean ones Given the results, the reclassification trends in credit ratings had no information content for decisions regarding capital structure in Latin America, so that managers do not seem to believe that an apparent rating reclassification is important for decisions on structure capital The results confirm that profitability, size, asset guarantees and tax benefits are factors that determine the level of long-term debt of Peruvian companies Evidence suggested that financial development provides easy access to third party capital and institutional quality is negatively related to company leverage

Summary

Introduction

From the studies by Durand (1952), Hirshleifer (1958), Lintner (1956), Markowitz (1952) and Modigliani and Miller (1958, 1963), several empirical studies have been performed in an attempt to understand the influence of capital structure on firm value since the 1950s (Ardalan, 2017; Milanesi, 2014; DeAngelo and Roll, 2015; Chakraborty, 2010). One of the study branches that arouses most interest in academia is studying factors that determine corporate indebtedness (Graham et al, 2015) In this line of thought, empirical contributions are controversial, so that the MM’s postulates were questioned and extended by a broader perspective on financial strategies, as reported by Ardalan (2017), Bradley et al (1984), Chen (2004), Fama and French (2002), Frank and Goyal (2003), Hovakimian et al (2004), Kayo and Kimura (2011), Moosa et al (2011), Rajan and Zingales (1995), Shah (2012), Shyam-Sunder and Myers (1999), Titman and Wessels (1988) and Vo (2017). According to Singer (2009), medium and large size countries under a certain industrialization level, such as Argentina, Brazil, Chile, Colombia, Mexico and Peru, were affected by the crisis in a similar way with capital flight, foreign credit reduction and decrease in exports

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