Corporate Governance and Capital Structure: Stock, Bonds and Substitution

Alexandre Ripamonti and Eduardo Kayo

MPRA Paper from University Library of Munich, Germany

Abstract: Purpose: To study the Brazilian bond and stock markets for testing the stock market development theory of Demirgüc-Kunt & Maksimovic (1996). Originality/Gap/Relevance/Implications: This paper tests the substitution hypothesis of stock market development, from debt to stocks, in a context of improved corporate governance, by analysing the data with cointegration techniques. The findings show that the substitution hypothesis is rejected, as the bond market has a positive and significant association with stock market improvements. The findings also show that improving the quality of corporate governance could lead own and borrower capital sources to be complementary and not substitutes, suggesting that Brazilian stock market reform has created a virtuous development cycle. Key methodological aspects: Positivist research using quantitative methodology. Data from a sample of 171 firms during 20 years´ analysed with cointegration. The null was a negative association between bond and stock markets. Summary of key results: Null rejection, non-consistent to theoretical framework. The results have shown a positive and significant association between stock and debt in an improved corporate governance context. Key considerations/conclusions: Improving the quality of corporate governance could lead own and borrower capital sources to be complementary and not substitutes, suggesting that Brazilian stock market reform has created a virtuous development cycle.

Keywords: Stock; market; development.; Bond; market; development.; Capital; structure.; Corporate; governance.; Bond; and; stock; complementarity; hypothesis (search for similar items in EconPapers)
JEL-codes: G15 G34 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Mackenzie Management Review 17.5(2016): pp. 85-109

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