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Ownership Concentration and the Determinants of Capital Structure in Latin America

Jacelly Céspedes (), Maximiliano González () and Carlos Molina Manzano ()
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Jacelly Céspedes: IESA
Maximiliano González: School of Management, Universidad de los Andes

No 20, Galeras. Working Papers Series from Universidad de Los Andes. Facultad de Administración. School of Management

Abstract: In this paper we study the capital structure de terminants of Latin American firms using a comprehensive sample from 1996 to 2005 co vering seven countries. We argue that ownership control is important for capital st ructure decisions in Latin America, where firms present a higher ownership concentr ation. We find a U-shape relation between ownership concentration and leverage. When ow nership concentration is low its effect on leverage is negative, and when ownership con centration is high its effect on leverage is positive. This U-shape relation is consistent with the argument that ownership- concentrated firms avoid equity issuing becau se they do not want to share or to lose control, and this effect is contrary if the ownership structure has enough dispersion and losing control is not an issue. Consistent with the control argument, we also find that firms with more growth opportunities exhibit higher leverage. In addition, and consistent with previous literature on developed countries, we find th at other factors that do not proxy for ownership control are important determ inants of leverage. Firms that are larger, with more tangible assets, and that are less profitable are also more leveraged.

Keywords: Capital Structure; Ownership Control; Emerging Markets; Latin America (search for similar items in EconPapers)
JEL-codes: G32 G15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2008-10-02
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