Fator pais e estrutura dinamica de capital nas empresas da America latina.
| Autor | Rodrigues Bogéa Sobrinho, Leonel |
| Cargo | Artículo en portugués - Estructura de capital, costos de ajuste, modelos dinámicos |
Country Factors and Dynamic Capital Structure in Latin American Firms
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Introduction
This paper investigates to which extent country idiosyncrasies contribute to the capital structure behavior of publicly traded Brazilian, Chilean and Mexican firms in the period between 1996 and 2010. We analyze the evolution of firms' leverage ratios against a set of candidate firm-specific determinants, controlling for firm's country of origin, and verify that the estimated results exhibit a significant component that is country-specific.
Our approach is to identify whether firms of a given country present a capital structure behavior relatively consistent and diverse from that of the remaining countries' firms. In our empirical analysis, we use two dynamic specifications that model leverage ratio fluctuations under the hypothesis of active capital structure rebalancing performed by firms' managers.
First, we estimate a partial adjustment model not only to determine which classically tested firm characteristics (such as size and profitability) properly explain capital structure behavior, but also to investigate whether the contribution of such determinants to the estimated speed of adjustment suggests that other factors (i.e. country idiosyncrasies) may play a significant role in the evolution of leverage ratios. However, under the hypothesis that firms avoid active capital structure rebalancing unless critical leverage ratios are achieved, periods of relative inactivity of capital structure adjustments may mislead the interpretation of the results of a partial adjustment model. Therefore, we perform a duration analysis to verify whether the violation of a quasi-optimal leverage ratio range triggers active capital structure rebalancing that otherwise would not take place. We test which cost proxies determine the observed path of leverage ratios and whether results depend on firms' country of origin.
In both models we employ dummy variables to flag Chilean and Mexican observations so as to evidence the dissimilar capital structure behavior of each individual country's firms in comparison to their Brazilian counterparts. Similarly, we employ the interactions of the aforementioned country dummies with firm-specific determinants to verify how differently such determinants influence leverage levels across countries. To the extent of our literature research, such a use of dummy variables and interactions to capture the effects of country-specific factors implicit to the specifications is a novel approach in this field of research.
The remainder of this paper is organized as follows: Section 2 presents the literature review and briefly discusses the theoretical foundations of the capital structure theories; Section 3 describes the and empirical methodologies and sample data, Section 4 discusses the obtained results and Section 5 offers the concluding comments.
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Literature Review
Notwithstanding the vast body of knowledge developed throughout the last decades, results of capital structure research are still not consistent in clarifying the key factors behind firms' financing decisions. The three main established approaches to capital structure (i.e. the trade off, the pecking order and the agency theories) state that the combination of multiple factors determines firms leverage ratios. Although past research has focused on firm-specific factors as leverage determinants, recent evidences point out that country, institutional and economic factors have significant influence over capital structure behavior and thus their omission from previous studies would represent a shortcoming to the discussion hitherto. In face of this, an increasing number of theoretical and empirical studies call attention to the influence of country-specific factors over capital structure, specially testing the significance of institutional and macroeconomic parameters.
A number of studies propose that country-specific factors are not as relevant as firm-specific factors to explain the behavior of leverage ratios. Among these, Booth et al. (2001) find that the effects of firm-specific determinants are similar across countries, even when comparing developed and developing ones. Kayo & Kimura (2011) conclude that country and industry-specific factors are less important than firm-specific factors to explain leverage behavior, result that varies from developed to emerging countries. Mitton (2008) also conclude that country factors are less important than firm-specific factors, focusing on a set of emerging countries. Likewise, Copat (2009), Kirch et al. (2008) and Jõrgensen & Terra (2003) analyze several leverage ratio determinants to find that firm-specific factors respond for the observed capital structure behavior of Latin American and Eastern European firms. Céspedes et al. (2010) evaluate the capital-structure determinants of seven Latin American firms and find a relation between leverage and ownership concentration that is consistent in all countries. Their results, particularly strong for Brazilian and Chilean firms, suggest that firms with highly concentrated ownership avoid issuing equity because they do not want to lose control.
Nevertheless, other researchers stand in favor of the significant role of countryspecific factors as leverage determinants. Demirgüç-Kunt & Maksimovic (1998) and Jong et al. (2008) verify that country-specific factors, together with firm factors, are significant determinants of capital structure. Cheng & Shiu (2007) propose that institutional factors are at least as relevant as firm-specific factors to explain leverage behavior on emerging countries firms and Joeveer (2006) concludes that country-specific factors are key determinants of leverage for small and private firms, while industry-specific factors play the same role for publicly-traded firms. Bastos et al. (2009) performed a multivariate panel data regression of firms belonging to the five largest Latin American economies, in order to identify the determinants of capital structure, and contrasted the relevance of macroeconomic and institutional factors to firm-specific ones. They concluded that the pecking order theory is more robust in explaining the obtained results and that the idiosyncrasies of each country contribute to the observed behavior of leverage ratios.
Although a number of researchers have ventured in this field of investigation, results are still not conclusive. A few papers, such as Kayo & Kimura (2011), made use of new approaches and methods in an attempt to enlighten the discussion on country factors as determinants of leverage ratios: they applied hierarchical linear modeling to assess the relative importance of time, firm, industry and country factors to capital structure definition. In a broader perspective, dynamic models have been progressively employed by researchers to capture the effects of adjustment costs and of changing target leverage ratios along time. Several recent studies found evidence supporting that firms actively adjust their leverage toward target levels, following a mean-reverting behavior consistent with the trade off theory (Dang et al, 2009). Ozkan (2001) and Flannery & Rangan (2006) employed partial adjustment models to find that American and British firms do rebalance their capital structures aiming at target leverage ratios. Lemmon et al. (2008) further explore the partial adjustment model and speeds of adjustment to find evidences that rather than being explained by time-varying determinants, leverage is mostly driven by permanent effects and concluded that leverage eventually reverts to a given target level essentially determined by factors other than time-varying firm characteristics. Similarly, Dang et al. (2009) develop an asymmetric partial adjustment model to evaluate the role of financial flexibility and adjustment costs to explain the capital structure of UK firms, finding that highly leveraged firms are quicker to adjust capital structure in order to avoid bankruptcy and liquidation costs.
Leary & Roberts (2005) and Machado (2009) innovated through applying a duration model to corroborate that the persistence of shocks to leverage results from costly adjustment rather than management unconcern for capital structure deviations. Given that costly adjustment creates disincentives for firms to immediately offset shocks to capital structure and firms would not engage in active rebalancing until its associated marginal gains exceed the adjustment costs, the authors advocate for the existence of a range within which leverage floats erratically. Leary & Roberts (2005) emphasize that the oversight of adjustment costs to the dynamics of capital structure has misguided researchers throughout past studies. They propose that costly adjustment responds for the observed persistence of shocks to leverage and explains the apparent indifference of firms to leverage oscillations.
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Hypotheses and Econometric Models
3.1 Objectives of the research
Dynamic models are employed in this study to verify that country effects play a key role in determining the capital structure of firms. Rather than looking for macroeconomic or institutional determinants of the leverage levels, we aim at observing how severely results vary across countries due to their idiosyncrasies. The next subsection will further detail our purpose and its implementation.
3.2 The relevance of firms' country of origin
We investigate whether and how the estimated results for Brazilian, Chilean and Mexican firms suffer major variations when analyzed across countries. Even though Latin American countries share somewhat similar history, culture and legal systems, one may expect dissimilarities in the social, institutional and economic spheres among these countries that may affect the coefficients of the dynamic models. Whereas all three countries show varied maturity in the decoupling of institutions from the political cycles, other factors such as investment...
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