Ajuste de la estructura de capital en las empresas latinoamericanas: una prueba empírica basada en el modelo de corrección de errores
| Autor | Jorge A. Muñoz Mendoza, Carlos L. Delgado Fuentealba, Carmen L., Sandra M. Sepúlveda Yelpo, Edinson E., Diego A. |
| Cargo | Associate Professor, Departamento de Gestión Empresarial, Universidad de Concepción, Los Angeles, Chile/Assistant Professor, Escuela de Administración y Negocios, Universidad de Concepción, Chillán, Chile/Professor, Departamento de Gestión Empresarial, Universidad de Concepción, Los Angeles, Chile/Assistant Professor, Departamento de Gestión ... |
Estudios Gerenciales vol. 39, N.° 166, 2023, 50-66
50
Research article
Capital structure adjustment in Latin American firms: An empirical test based on the
Error Correction Model
Jorge A. Muñoz Mendoza*
Associate Professor, Departamento de Gestión Empresarial, Universidad de Concepción, Los Angeles, Chile.
jormunozm@udec.cl
Carlos L. Delgado Fuentealba
Assistant Professor, Escuela de Administración y Negocios, Universidad de Concepción, Chillán, Chile.
cadelgado@udec.cl
Carmen L. Veloso Ramos
Professor, Departamento de Gestión Empresarial, Universidad de Concepción, Los Angeles, Chile.
carmenveloso@udec.cl
Sandra M. Sepúlveda Yelpo
Assistant Professor, Departamento de Gestión Empresarial, Universidad de Concepción, Los Angeles, Chile.
ssepulveday@udec.cl
Edinson E. Cornejo Saavedra
Assistant Professor, Departamento de Gestión Empresarial, Universidad del Bío-Bío, Chillán, Chile.
ecornejo@ubiobio.cl
Diego A. Erices Olivera
Researcher, Departamento de Gestión Empresarial, Universidad de Concepción, Los Angeles, Chile.
derices2016@udec.cl
Abstract
The objective of this article is to analyze the capital structure adjustment of Latin American firms through the pecking order and trade-off
theories using a sample of 975 non-financial firms for the period 2000-2017. The results support the existence of a target capital structure.
Adjustment speeds ranged between 48.9% and 74.3% and generate a rapid convergence of leverage towards its target level. Financial deficits
explained less than half of the changes in debt, which contradicts the pecking order theory. The results of the error correction model indicated
that companies dynamically deviate from their long-term capital structure. The convergence speeds in the partial adjustment model increased
up to 69.5% and 91.7% with the error correction method. These results are relevant for firms and investors.
Keywords: pecking order; trade-off; capital structure; adjustment; leverage.
Ajuste de la estructura de capital en las empresas latinoamericanas: una prueba empírica basada en el modelo de corrección
de errores
Resumen
Este artículo analiza el ajuste de la estructura de capital a través de las teorías de Pecking Order y Trade-off utilizando 975 empresas
latinoamericanas no financieras para el período 2000-2017. Los resultados respaldan la existencia de una estructura de capital objetivo. Las
velocidades de ajuste oscilaron entre 48,9% y 74,3%, y generaron una rápida convergencia hacia su nivel objetivo. Los déficits financieros
explicaron menos de la mitad de los cambios en la deuda, lo que contradice la teoría de financiación jerarquizada. Los resultados del modelo
de corrección de errores indicaron que las empresas se desvían dinámicamente de su estructura de capital de largo plazo, en cuyo caso las
velocidades de convergencia aumentaron entre 69,5% y 91,7%. Estos resultados son relevantes para empresas e inversores.
Palabras clave: pecking order; trade-off; estructura de capital; ajuste; apalancamiento.
Ajuste da estrutura de capital em empresas latino-americanas: um teste empírico baseado no modelo de correção de erros
Resumo
Este artigo analisa o ajuste da estrutura de capital por meio das teorias Pecking Order e Trade-off utilizando 975 empresas não financeiras
latino-americanas para o período 2000-2017. Os resultados suportam a existência de uma estrutura de capital alvo. As velocidades de ajuste
variaram de 48,9% a 74,3%, gerando rápida convergência para o seu nível alvo. Os déficits de financiamento explicaram menos da metade
das variações da dívida, contrariando a teoria de Pecking Order. Os resultados do modelo de correção de erros indicaram que as empresas se
desviam dinamicamente de sua estrutura de capital de longo prazo, caso em que as velocidades de convergência aumentaram entre 69,5% e
91,7%. Esses resultados são relevantes para empresas e investidores.
Palavras-chave: pecking order; trade-off; estrutura de capital; ajuste; alavancagem.
* Corresponding author.
JEL class ification: G31; G32 ; G34.
How to cite: Muño z Mendoza, J. A., Del gado Fuentealba, C. L ., Veloso Ramos, C. L ., Sepúlveda Yelpo, S . M., Cornejo Saav edra, E. E. & Erice s Olivera, D. A .
(2023). C apital struct ure adjustment in L atin American f irms: an empiric al test based on the Er ror Correct ion Model. Estudios Gerenciales, 39(166), 50-66.
https://doi.org/10.18046/j.estger.2023.166.5432
DOI: https://doi.org/10.18046/j.estger.2023.166.5432
Received: 16-03-2022
Accepted: 08-08-2022
Available online: 16-03-2023
© 2023 Universidad ICESI. Published by Universidad Icesi, Colombia.
This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)
Muñoz Mendoza et al. / Estudios Gerenciales vol. 39, N.° 166, 2023, 50-66 51
1. Introduction
Since the seminal works of M odigliani and Miller (1958,
1963), the capital s tructure decision has been ex tensively
studied in modern cor porate finance. Its relevance l ies in
the implications it has on the f irms’ value. Firms’ quality,
as well as information as ymmetries, agency costs or ta x
advantages at tributable to debt, are determinant factor s
to make the capital struc ture choice.
In the literature, several theories that explain the
corporate capital structure decision can be found. Two of
the main theoretical contributions are the trade-off and
pecking order theories. The first one indicates that firms
decide their capital structure by balancing bankrupt-
cy costs (Bradley, Jarrell, & Kim, 1984), tax incentives,
and corporate control over agency conflicts (Jensen &
Mecking, 1976). It suggests the existence of a target ca-
pital structure to which firms partially adjust. The latter
predicts that firms establish the capital structure by
selecting their financing in a hierarchical way based on
the costs of information asymmetries (Myers, 1984; Myers
& Majluf, 1984). The empirical discussion on this issue
is still open in both developed and emerging markets,
and without a clear consensus as to which theory best
predicts the capital structure decision (De Jong, Verbeek
& Verwijmeren, 2011; Dang, Kim & Shin, 2012; Dang,
2013; Serrasqueiro & Caetano, 2015; Jarallah, Saleh &
Salim, 2019; Agyei, Sun & Abrokwah, 2020). More recent
studies have analyzed both approaches together and have
concluded that they are not exclusive and their dynamic
behaviors would affect the capital structure adjustment
(Dang, 2013; Kannadhasan, Singh, Gupta & Charan, 2018).
This analysis has become relevant for firms, investors,
and policy makers in Latin American markets due to the
scarce empirical literature. De Gregorio, García, and Jara-
Bertin (2017) warned that after the subprime crisis, La-
tin American firms significantly increased their level of
corporate debt. This implied changes in capital structures
and debt adjustment mechanisms that have not been
investigated in firms in the region. It is still necessary
to analyze whether the target capital structure of Latin
American firms is dynamic and depends on adjustment
costs. This would have significant effects on the way firms
adjust their financing structure. Therefore, our research
addresses these empirical gaps and analyzes the capital
structure decision of Latin American firms based on
the trade-off and pecking order theories. The empirical
contributions of this research can be summarized in
two points. First, we separately and jointly analyzed the
trade-off and pecking order theories in determining the
capital structure of Latin American firms. At this point, we
evaluated the speed of adjustment of the capital structure
and the explanatory power of the financial deficit (surplus)
in the leverage change. Second, through GMM estimators
for dynamic panel data, we used the error correction
model (ECM) to evaluate the speed of adjustment of the
firms’ capital structure for both theories. The specific
objective was to verify that the target capital structure
is dynamic and depends on adjustment costs, as well
as its potential impact on the convergence of leverage
mechanism towards its target level.
We used a panel data for 975 non-financial firms for
the period 200 0-2017. The estimates were based on the
GMM, and GMM-SYS methods proposed by Arellano and
Bond (1991) and Arell ano and Bover (1995), respectively.
Our results suppor t the existence of a target capital
structure and reveal that Latin American firms adjust
their indebtedness in accordance with the trade-off
theory. Adjustment speeds ranged from 4 8.9% to 74.3%,
indicating a rapid convergence of leverage towards its
target level. On the other h and, financial deficits (surplus)
explained less than half of the debt change, which clear-
ly contradicts the pecking order theor y. The results of
the ECM showed that convergence speeds in the partial
adjustment model increased to a range from 69.5% to
91.7%, and also indicated that firms dynamically deviate
from their long-term c apital structure. These re sults are
relevant for firms and investors due to their implications
in investment and financing decisions; as well as for
policy makers, sin ce they guide the design of regulations
aimed at strengthening the cost-benefit relationship of
corporate debt.
This article is structured as follows: Section 2
presents a liter ature review on the trade-off an d pecking
order theories; Section 3 presents the data and analysis
methodologies; Section 4 shows the results obtained;
and Section 5 groups together the conclusions and
implications of this res earch.
2. L iterature review
2.1 The trade-off and pecking order theories
The trade-off theory is one of the most discussed
approaches in modern corporate finance. According to it,
firms determine their capital structure by balancing the
benefits and costs of debt. On the benefits side, leverage
reduces agency costs associated with asset substitution
(Jensen & Meckling, 1976) and generates tax advantages
that increase the firm value (Modigliani & Miller, 1963).
On the cost side, indebtedness increases bankruptcy
costs and liquidity risk (Jensen & Meckling, 1976; Bradley
et al., 1984). The trade-off between these costs and
benefits establishes an optimal capital structure in which
firms adjust over time and maximize their market value.
According to previous studies, the representation of the
partial adjustment model is:
∆Dit = α + λ (Dit - Dit-1) + εi
t
*
(1)
∆Dit = α + λTLD + εi
t
(2)
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