An Empirical Analysis of the Financing Policies Adopted by Brazilian Public Companies

Fernando Oliveira and Pedro Góes Monteiro de Oliveira ()
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Pedro Góes Monteiro de Oliveira: Starplan Ltda e IBMEC/RJ

Brazilian Review of Finance, 2009, vol. 7, issue 4, 459-484

Abstract: The Static Tradeoff and Pecking Order models specified in Shyam-Sunder and Myers (1999) were employed to analyze the financing policies adopted by Brazilian public firms. At a first glance, it seems that both models correctly describe the way in which firms in the sample finance their investments, although the Pecking Order model explains a greater percentage of the time series variance in the debt level. But when the power to reject the alternative hypothesis of each of the two models is considered, we conclude that the adopted policy is actually of the pecking order type. The factors that influence the decision to issue debt or equity to finance cash deficits, for the firms in the sample, were also studied with the help of two nonlinear probability models of the “Probit” type. The results show that equity is issued when market conditions are favorable, and not only when there is a substantial risk of default, pointing to a pecking order policy of the “complex” type.

Keywords: capital structure; cash deficit; financial leverage; static tradeoff; pecking order (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2009
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