Abstract
This research examines the determinants of the capital structure of firms introducing a behavioral perspective that has received little attention in the empirical corporate finance literature. Specifically, we investigate a central hypothesis that emerges from a set of recently developed theories: firms managed by optimistic and/or overconfident people will choose more levered financing structures than others, ceteris paribus. We propose different proxies for managerial optimism/overconfidence, mainly based on the manager's status as an entrepreneur or non-entrepreneur (for example, if the manager is the founder of the firm or a hired executive). This proposition is supported by theories and solid empirical evidence showing that entrepreneurs tend to display these cognitive biases more frequently than employees. We also define alternative proxies based on the pattern of ownership of the firm's shares by its managers. The study includes, in addition, potential determinants of capital structure used in earlier research, as suggested by the traditional pecking order and trade-off approaches. We use a sample of Brazilian firms listed in the Sao Paulo Stock Exchange (Bovespa) in the years 1998 to 2003 and employ robust panel-data estimation procedures to account for endogeneity and spurious correlation issues. The empirical analysis strongly suggests that the proxies for the referred cognitive biases are important determinants of capital structure. Specifically, we report a strong positive association between these proxies and leverage ratios, in line with our behavioral hypothesis. We also found as relevant explanatory variables: profitability, size, dividend payment and tangibility, as well as some indicators that capture firms' corporate governance standards. Our results suggest that behavioral approaches based on human psychology research can offer relevant contributions to the understanding of corporate decision making.
Highlights
This research examines the determinants of the capital structure of firms introducing a behavioral perspective that has received little attention in corporate finance literature
The empirical analysis suggests that the proxies for the referred cognitive biases are important determinants of capital structure
Utilizando dados entre 1998 e 2003 de uma amostra de empresas brasileiras com acoes negociadas na Bovespa, foram estimados modelos dinamicos e estaticos relacionando o nıvel de alavancagem das empresas com as proxies para os vieses cognitivos e para outros potenciais determinantes da estrutura de capital investigados em trabalhos anteriores
Summary
As pesquisas que enfocam os direcionadores das decisoes de financiamento das empresas abordam o problema utilizando uma mirıade de pontos de vista diferentes. Este trabalho investiga a possıvel influencia de dois vieses de cognicao estreitamente relacionados entre si e fartamente registrados em pesquisas comportamentais, os vieses do otimismo e do excesso de confianca, sobre as decisoes de estrutura de capital das empresas. Utilizando dados entre 1998 e 2003 de uma amostra de empresas brasileiras com acoes negociadas na Bovespa, foram estimados modelos dinamicos e estaticos relacionando o nıvel de alavancagem das empresas com as proxies para os vieses cognitivos e para outros potenciais determinantes da estrutura de capital investigados em trabalhos anteriores. Os resultados da analise empırica revelam uma significativa influencia positiva das proxies para otimismo/excesso de confianca gerencial sobre o nıvel de alavancagem das empresas da amostra, depois de isoladas fontes observaveis e naoobservaveis de heterogeneidade entre as empresas. A Secao 4 discute os principais resultados obtidos e a Secao 5 apresenta as consideracoes finais do trabalho
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