Macroeconomic and Institutional Factors, Debt Composition and Capital Structure of Latin American Companies

Bernardo, Cláudio Júnior; Albanez, Tatiana; Securato, José Roberto

doi:10.15728/bbr.2018.15.2.4

Cláudio Júnior Bernardo ^†† Pontifícia Universidade Católica de São Paulo (PUC/SP) E-mail: claudiojrbernardo81@gmail.com

Pontifícia Universidade Católica de São Paulo (PUC/SP), São Paulo, SP, Brazil

Tatiana Albanez ^ΩΩ Universidade de São Paulo (FEA/USP) E-mail: tatiana.albanez@usp.br

Universidade de São Paulo (FEA/USP), São Paulo, SP, Brazil

José Roberto Securato ^¥¥ Universidade de São Paulo (FEA/USP) E-mail: securato@usp.br

Universidade de São Paulo (FEA/USP), São Paulo, SP, Brazil

Corresponding author:

† Pontifícia Universidade Católica de São Paulo (PUC/SP) E-mail: claudiojrbernardo81@gmail.com

Ω Universidade de São Paulo (FEA/USP) E-mail: tatiana.albanez@usp.br

¥ Universidade de São Paulo (FEA/USP) E-mail: securato@usp.br

Authors	Objetives of the Studies	Main Empirical Evidence
Bastos et al. (2009)BASTOS, D. D.; NAKAMURA, W. T.; BASSO, L. F. C. Determinantes da estrutura de capital das companhias abertas na América Latina: um estudo empírico considerando fatores macroeconômicos e institucionais. Revista de Administração Mackenzie - RAM, v. 10, n. 6, Nov./Dec. 2009.	To analyze the determinants of the capital structure of publicly-held companies in Latin America taking into account the specific aspects of the firm and and also the institutional and macroeconomic aspects of each country. The study comprised a sample of 388 companies from 2001 to 2006, with the companies belonging to the following countries: Mexico, Brazil, Argentina, Chile and Peru. The data analysis was performed using the econometric data panel technique.	It concludes that the Pecking Order theory explains more strongly the indebtedness of companies in the analyzed countries. It is also considered that macroeconomic and institutional factors, have collaborated to justify that, in times of economic growth, companies decrease their financial leverage, where the variable GDP growth was the most relevant statistically speaking.
Kayo and Kimura (2011)KAYO, E. K.; KIMURA, H. Hierarchical determinants of capital structure. Journal of Banking & Finance, v. 35, n. 2, p. 358-371, 2011.	To analyze the relationship between indebtedness and 3 levels of determinants: year, firm and industry in emerging and developed markets. The work brought two important contributions to the study of capital structure, with the first being the use of the multilevel analysis model that contributed to the analysis of the simultaneous influence of the three levels of determinants on indebtedness, and the second important contribution is the analysis of two variables related to the sector: Munificence and Dynamism.	"The results show that the variance of indebtedness is explained in 65.1% by the independent firm-specific variable, 26.9% explained due to time and 8% due to the sector. Regressions were significant for most of the firm's specified variables, except for the variable Size. Regarding the variables related to the sector, Munificence showed a positive and significant sign with the indebtedness of the companies."
Valle and Albanez (2012)VALLE, M. R.; ALBANEZ, T. Juros altos, fontes de financiamento e estrutura de capital: o endividamento de empresas brasileiras no período 1997-2006. Revista de Contabilidade e Organizações, v. 6, p. 49-72, 2012.	To analyze the influence of institutional factors represented by sources of resources with subsidized interest rates and foreign currencies on indebtedness. The period comprised the years 1997 to 2006. In the analysis of the firm's specific variables, the traditional ones found in the literature we considered and, for the institutional explanatory variable, the type of company financing was analyzed, indicating whether the type of financing is subsidized or market, in national currency or foreign currency. The quantitative method used was data panel analysis.	The results show that the differentiated sources of resources and foreign currency lines had a significant participation in the indebtedness of Brazilian companies. It was concluded that the inclusion of access to different sources in the analysis model to understand the indebtedness of Brazilian companies contributed to the understanding of the capital structure of the same, which demonstrates the importance of analyzing institutional factors in capital structure studies.
Santos (2013)SANTOS, M. A. Determinantes da estrutura de capital de empresas em diferentes cenários econômicos e institucionais: um estudo comparativo. Dissertação de Mestrado - Departamento de Contabilidade, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto, Universidade de São Paulo, Ribeirão Preto, 2013.	To analyze the importance of the firm and country-specific variables in the companies' indebtedness and if there is a variation of the importance of these variables in countries with different economic contexts and in periods of economic growth or contraction. We analyzed 10,243 companies based in 61 different countries from 2002 to 2011. The three-level hierarchical linear regression model with repeated measures is used.	The results show that the indebtedness is explained to a greater degree by the characteristics of the firm and time and, to a lesser extent, but also significant, by the characteristics of the environment. The study also identified that the firm's specific variable did not have significant changes in its behavior even in distinct economic environments and in periods before and after economic crises. In relation to the analyzed country variables, these presented a behavior that was adverse and little explanatory, and neither did it show any behavioral changes when compared in different economic environments.
Martins and Terra (2014)MARTINS, H. C.; TERRA, P. R. S. Determinantes nacionais e setoriais da estrutura de capital na América Latina. Revista de Administração Contemporânea - RAC, v. 18, n. 5, p. 577-597, 2014.	To analyze the role of the national scenario (Macroeconomics, Financial Development and Institutional Quality) and characteristics of the sectors of activity in determining the capital structure of companies in Latin America. A total of 612 publicly traded companies from 7 Latin American countries were analyzed. A comparison was also conducted with 847 companies from the United States. The period of analysis comprised the years 1996 to 2009. The Linear Hierarchical Model was used for the analysis.	The result is that Financial Development facilitates access to third-party capital resources and Institutional Quality is negatively related to corporate indebtedness. Additionally, there is evidence that the Institutional Quality can promote the asymmetric development between the stock market and credit.
Martins and Terra (2015)______.; ______. Maturidade do endividamento, desenvolvimento financeiro e instituições legais: análise multinível em empresas latino-americanas. Revista de Administração da Universidade de São Paulo - RAUSP, v. 50, n. 3, p. 381-394, 2015.	To analyze the influence of different groups of factors (firm and macroeconomic variables) in the variance of corporate debt maturity in Latin America. Publicly held companies from 7 Latin American countries were analyzed, in addition to American companies as a comparison, totaling 1820 companies. The period of analysis covered the years 1996 to 2009. Linear Hierarchical Model and Factor Analysis were used for the analysis.	The results suggest that the variations over time and between firms are the major sources of variations in the maturity of the debt. The size, liquidity of the company, the real interest rate and the financial development of the country stand out as the main determinants of the maturity of the debts. Also, the financial development and quality measures of the institutions indirectly impacted the indebtedness maturity by means of the size variable.

Macroeconomic Factors	Expected Relationship to Leverage (Hypotheses)
Growth of Gross Domestic Product	Negative
Per capita income	Undetermined
Annual inflation rate	Positive
Participation of open economies	Negative
Average time to open a business in the country	Negative

Institutional Factors	Expected Relation to Leverage (Hypotheses)
Level of Protection of Property Rights	Positive
Legal Risk Level	Positive
Level of Protection to Minorities	Negative
Level of Protection to Creditors	Positive/Negative
Level of Corruption and Ethics	Negative

Attribute	Acronym	Proxy	Expected Sign
Dependent Variables
Financial Leverage 1	Fin_Lev1	Gross Debt / Asset
Financial Leverage 2	Fin_Lev2	(Current Liabilities + Noncurrent Liabilities) / Asset
Leverage at Market Value 1	Lev_Mkt1	Gross Debt / Assets at Market Value
Leverage at Market Value 2	Lev_Mkt2	(Current Liabilities + Noncurrent Liabilities) / Asset at Market Value
Short-term Leverage	Lev_ST	Current Liabilities / Asset
Long-term Leverage	Lev_LT	Noncurrent Liabilities / Asset

Explanatory Firm Variables
Size	Size	Ln (Net Operating Revenue)	Neg./Pos.
Tangibility	Tang	(Fixed assets + Inventories) / Assest	Neg./Pos.
Profitability	Prof	Return on Asset - ROA	Neg./Pos.
Risk	Risk	ROA standard deviation	Neg.
Liquidity	Liq	Current Assets / Current Liabilities	Neg.
Growth Opportunities	Gr_Opp	(Salest / Salest-1) - 1	Neg./Pos.
Market-to-Book	MB	Asset at Market Value / Assets at Book Value	Neg./Pos.

Explanatory Country Variables - Macroeconomic Factors
Growth of Gross Domestic Product	Growt_GDP	Average annual GDP change between 2009 and 2014	Neg.
Per capita income	Income	Natural logarithm of GDP/Total population	Undetermined
Annual inflation rate	Infl	Average annual inflation rate between 2009 and 2014	Pos.
Participation of public-traded companies in the economy	Part_Comp	Total in US$ of the market value of publicly traded companies/GDP	Neg.
Average time to start a business	T_Buss	Natural logarithm of number of days	Neg.
Explanatory Country Variables - Institutional Factors
Property right	Prop_Rig	Level of property rights protection-GCI (1 worst-7 best)	Pos.
Legal Risk	Legal_Risk	Efficiency of the legal framework in litigation-GCI (1 worst-7 best)	Neg.
Minority Protection	Min_Prot	Legal Protection for Investors-GCI (1 worst-7 best)	Neg.
Creditors Protection	Cred_Prot	Legal protection to the creditor World Bank (0 weak-12 strong)	Neg./Pos.
Level of Corruption and Ethics	Corrup_Eth	GCI aggregate indicator (the higher the better)	Pos.

Variables	N. Obs.	Argentina	Brazil	Chile	Colombia	Mexico	Peru	Overall Mean	Overall Std. Dev.
Fin_Lev1	3358	0,2070	0,2776	0,2483	0,1323	0,2489	0,2526	0,2525	0,1704
Lev_Mkt1	3104	0,1897	0,2360	0,2119	0,1275	0,1977	0,2505	0,2188	0,1651
Fin_Lev2	3462	0,5555	0,5576	0,4562	0,3131	0,4763	0,4142	0,5004	0,1985
Lev_Mkt2	3203	0,4916	0,4665	0,3882	0,3110	0,3641	0,3981	0,4263	0,2214
Lev_ST	3462	0,3634	0,2564	0,2145	0,1808	0,2227	0,2181	0,2477	0,1561
Lev_LT	3462	0,1921	0,3012	0,2417	0,1323	0,2536	0,1962	0,2526	0,1606
Size	3648	11,7086	13,1370	12,3085	12,8009	13,5636	11,9835	12,7424	2,0332
Tang	3648	0,5209	0,3402	0,4770	0,2386	0,4951	0,5902	0,4355	0,2351
Prof	3648	0,0732	0,0661	0,0599	0,0831	0,0736	0,1169	0,0733	0,0990
Risk	3648	0,0368	0,0462	0,0434	0,0504	0,0238	0,0521	0,0421	0,0607
Liq	3648	1,6102	2,0412	2,1412	1,6094	2,9575	2,1195	2,1489	2,6973
Gr_Opp	3648	1,0780	0,2569	0,4450	0,2183	0,3530	0,1702	0,3844	2,7460
MB	3648	1,2905	1,5163	1,4506	1,2199	1,5635	1,3835	1,4609	0,8633
Growt_GDP	3648	0,0367	0,0265	0,0369	0,0429	0,0200	0,0500	0,0319	0,0091
Income	3648	9,4291	9,3218	9,5260	8,8518	9,1436	8,6446	9,2503	0,2651
Infl	3648	0,1859	0,0575	0,0279	0,0300	0,0413	0,0292	0,0587	0,0457
Part_Comp	3648	0,0997	0,5278	1,1516	0,5879	0,3992	0,5007	0,5823	0,3081
T_Buss	3648	3,2222	4,6839	2,3932	2,4482	1,8560	3,3383	3,4161	1,1168
Prop_Rig	3648	2,6774	4,3855	5,1672	3,8708	4,0475	3,7766	4,2140	0,6864
Legal_Risk	3648	2,6390	3,3330	4,7271	3,3422	3,2136	3,0540	3,4788	0,6471
Min_Prot	3648	3,4750	4,6443	4,7109	4,0678	4,2492	4,3251	4,4146	0,3763
Cred_Prot	3648	2,0000	2,0000	4,0000	8,0000	7,5000	8,0000	4,1373	2,5068
Corrup_Eth	3648	2,0728	2,5840	4,6644	2,6587	2,7955	2,8480	2,9989	0,8433

	Fin_Lev1		Lev_Mkt1		Fin_Lev2		Fin_Mkt2		Lev_ST		Lev_LT
Observations	3358		3104		3462		3203		3462		3462
Fixed Effects	Coef.		Coef.		Coef.		Coef.		Coef.		Coef.
Intercept	0,237	***	0,209	***	0,469	***	0,410	***	0,244	***	0,226	***
Estimators (Variance)
Parameters of Random Effects
Country	0,001		0,001		0,006		0,002		0,003		0,002
Firm	0,023		0,021		0,030		0,037		0,017		0,018
Time	0,005		0,006		0,007		0,011		0,006		0,006
Total	0,030		0,028		0,042		0,050		0,026		0,026
Intraclass Correlation Coefficients
Level 3 (Country)	3,08%		1,83%		13,66%		4,55%		11,80%		8,17%
Level 2 (Firm)	78,40%		75,35%		70,13%		74,53%		64,84%		69,86%
Level 1 (Time)	18,51%		22,82%		16,21%		20,92%		23,36%		21,97%
Total	100,00%		100,00%		100,00%		100,00%		100,00%		100,00%
LR Test (Chi2)	3657,010	***	2778,150	***	4075,790	***	3127,060	***	3104,980	***	3375,890	***

	Fin_Lev1: Gross Debt/Asset						Fin_Mkt1: Gross Debt/Assets at Market Value
	Firm Variables		Firm and Macroeconomic variables		Firm and Institutional Variables		Firm Variables		Firm and Macroeconomic variables		Firm and Institutional Variables
Fixed Effects	Coef.		Coef.		Coef.		Coef.		Coef.		Coef.
Intercept	0,013		567,845	***	0,158		0,125	***	433,024	***	-0,187
Year	0,007	***	0,007	***	0,007	***	0,014	***	0,014	***	0,014	***
Size	0,020	***	0,020	***	0,020	***	0,010	***	0,010	***	0,010	***
Tang	0,034		0,026		0,026		0,069	***	0,064	**	0,064	**
Prof	-0,185	**	-0,184	**	-0,184	**	-0,163	**	-0,167	**	-0,167	**
Risk	-0,082		-0,084		-0,084		0,042		0,034		0,034
Liq	-0,011	***	-0,011	***	-0,011	***	-0,010	***	-0,010	***	-0,010	***
Gr_Opp	0,000		0,000		0,000		-0,001		-0,001		-0,001
MB	-0,019	**	-0,020	**	-0,020	**	-0,066	***	-0,066	***	-0,066	***
Growt_GDP			-1215,186	***					-925,792	***
Income			-64,419	***					-49,113	***
Infl			388,870	***					296,262	***
Part_Comp			65,860	***					50,188	***
T_Buss			1,666	***					1,276	***
Prop_Rig					0,092						-0,056
Legal_Risk					-0,342	**					-0,151
Min_Prot					0,032						0,179
Cred_Prot					-0,014	**					-0,006
Corrup_Eth					0,197	**					0,108
Random Effect Parameters
	Estimate	ICC	Estimate	ICC	Estimate	ICC	Estimate	ICC	Estimate	ICC	Estimate	ICC
Country	0,001	3,90%	0,000	0,00%	0,000	0,00%	0,001	3,89%	0,000	0,00%	0,000	0,00%
Firm	0,020	75,73%	0,019	78,58%	0,019	78,58%	0,016	70,29%	0,015	72,89%	0,015	72,89%
Time	0,005	20,37%	0,005	21,42%	0,005	21,42%	0,006	25,82%	0,006	27,11%	0,006	27,11%
Total	0,026	100,00%	0,025	100,00%	0,025	100,00%	0,022	100,00%	0,021	100,00%	0,021	100,00%
Verification Tests
Wald's Test	3096,159	***	3104,870	***	3104,870	***	2793,260	***	2801,682	***	2801,682	***
LR Test (chi2)	3395,560	***	3292,100	***	3292,100	***	2477,380	***	2369,390	***	2369,390	***
Observations	3358		3358		3358		3104		3104		3104

	Fin_Lev2: CL+ NCL/Asset						Lev_Mkt2: CL+NCL/Assets at Market Value
	Firm Variables		Firm and Macroeconomic variables		Firm and Institutional Variables		Firm Variables		Firm and Macroeconomic variables		Firm and Institutional Variables
Fixed Effects	Coef.		Coef.		Coef.		Coef.		Coef.		Coef.
Intercept	0,226	***	643,314	***	1,767	***	0,464	***	366,020	**	0,877	**
Year	0,011	***	0,011	***	0,011	***	0,022	***	0,022	***	0,022	***
Size	0,022	***	0,022	***	0,022	***	0,005		0,005		0,005
Tang	-0,003		-0,007		-0,007		0,066	**	0,063	**	0,063	**
Prof	-0,212	***	-0,208	**	-0,208	**	-0,257	***	-0,254	***	-0,254	***
Risk	0,199	*	0,205	*	0,205	*	0,236	**	0,240	**	0,240	**
Liq	-0,025	***	-0,025	***	-0,025	***	-0,021	***	-0,021	***	-0,021	***
Gr_Opp	0,006	**	0,006	**	0,006	**	0,003		0,003		0,003
MB	-0,011		-0,011		-0,011		-0,126	***	-0,126	***	-0,126	***
Growt_GDP			-1378,973	***					-783,734	**
Income			-72,959	***					-41,480	**
Infl			441,504	***					251,004	**
Part_Comp			74,627	***					42,424	**
T_Buss			1,897	***					1,095	**
Prop_Rig					0,449	***					0,106
Legal_Risk					-0,743	***					-0,300	*
Min_Prot					-0,377	***					-0,029
Cred_Prot					-0,042	***					-0,024	***
Corrup_Eth					0,342	***					0,144	*
Random Effect Parameters
	Estimate	ICC	Estimate	ICC	Estimate	ICC	Estimate	ICC	Estimate	ICC	Estimate	ICC
Country	0,006	17,37%	0,000	0,00%	0,000	0,00%	0,002	7,72%	0,000	0,00%	0,000	0,00%
Firm	0,023	64,42%	0,023	77,77%	0,023	77,77%	0,020	64,44%	0,020	69,58%	0,020	69,58%
Time	0,006	18,21%	0,006	22,23%	0,006	22,23%	0,009	27,85%	0,009	30,42%	0,009	30,42%
Total	0,036	100,00%	0,029	100,00%	0,029	100,00%	0,032	100,00%	0,029	100,00%	0,029	100,00%
Verification Tests
Wald's Test	2880,825	***	2893,262	***	2893,262	***	2249,620	***	2259,780	***	2259,780	***
LR Test (chi2)	3589,090	***	3236,170	***	3236,170	***	2385,310	***	2174,360	***	2174,360	***
Observations	3462		3462		3462		3203		3203		3203

	Lev_ST: CL/Asset						Lev_LT: NCL/Asset
	Firm Variables		Firm and Macroeconomic variables		Firm and Institutional Variables		Firm Variables		Firm and Macroeconomic variables		Firm and Institutional Variables
Fixed Effects	Coef.		Coef.		Coef.		Coef.		Coef.		Coef.
Intercept	0,172	***	295,207	**	1,094	***	0,055		348,509	**	0,676	*
Year	0,003	***	0,003	***	0,003	***	0,008	***	0,008	***	0,008	***
Size	0,007	**	0,007	**	0,007	**	0,015	***	0,015	***	0,015	***
Tang	-0,021		-0,024		-0,024		0,018		0,017		0,017
Prof	-0,082		-0,083		-0,083		-0,137	*	-0,126	*	-0,126	*
Risk	0,280	***	0,284	***	0,284	***	-0,085		-0,079		-0,079
Liq	-0,016	***	-0,016	***	-0,016	***	-0,009	***	-0,009	***	-0,009	***
Gr_Opp	0,003	*	0,003	*	0,003	*	0,002		0,002		0,002
MB	0,006		0,006		0,006		-0,016	**	-0,017	**	-0,017	**
Growt_GDP			-631,435	**					-748,396	**
Income			-33,477	**					-39,528	**
Infl			203,142	**					238,634	**
Part_Comp			34,222	**					40,451	**
T_Buss			0,860	**					1,038	**
Prop_Rig					0,136						0,313	***
Legal_Risk					-0,320	**					-0,424	***
Min_Prot					-0,186	*					-0,192	*
Cred_Prot					-0,022	***					-0,020	***
Corrup_Eth					0,176	***					0,166	**
Random Effect Parameters
	Estimate	ICC	Estimate	ICC	Estimate	ICC	Estimate	ICC	Estimate	ICC	Estimate	ICC
Country	0,003	13,34%	0,000	0,00%	0,000	0,00%	0,002	8,00%	0,000	0,00%	0,000	0,00%
Firm	0,015	61,37%	0,014	70,59%	0,014	70,59%	0,016	68,66%	0,016	74,41%	0,016	74,41%
Time	0,006	25,29%	0,006	29,41%	0,006	29,41%	0,006	23,34%	0,006	25,59%	0,006	25,59%
Total	0,024	100,00%	0,020	100,00%	0,020	100,00%	0,024	100,00%	0,022	100,00%	0,022	100,00%
Verification Tests
Wald's Test	3115,695	***	3127,392	***	3127,392	***	3197,257	***	3207,377	***	3207,377	***
LR Test (chi2)	2838,450	***	2560,240	***	2560,240	***	3135,670	***	2907,580	***	2907,580	***
Observations	3462		3462		3462		3462		3462		3462

\begin{matrix} π_{pij} = β_{p 0 j} + β_{p 1 j} {. X}_{lij} + β_{p 2 j} {. X}_{2 i j} + \dots + β_{pQpj} {. X}_{Qpjj} + r_{pij} \\ π_{pij} = β_{p 0 j} + \sum β_{pqj} {. X}_{qij} + r_{p i j,} in w h i c h : \end{matrix}

\begin{matrix} B_{pqj} = γ_{p q 0} + γ_{p q 1} {. W}_{lj} + γ_{p q 2} {. W}_{2 j} + \dots + γ_{pqSpq} {. W}_{Spq} + u_{pqj} \\ B_{pqj} = γ_{p q 0} + Σ γ_{pqs} {. W}_{sj} + u_{p q j,} in w h i c h : \end{matrix}

[1] † Pontifícia Universidade Católica de São Paulo (PUC/SP) E-mail: claudiojrbernardo81@gmail.com

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Macroeconomic and Institutional Factors, Debt Composition and Capital Structure of Latin American Companies