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Article
Publication date: 1 June 2015

Tatiana Albanez

The purpose of this paper is to examine the market timing behavior of listed Brazilian companies to verify the effects of the cost of capital on their financing decisions, and…

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Abstract

Purpose

The purpose of this paper is to examine the market timing behavior of listed Brazilian companies to verify the effects of the cost of capital on their financing decisions, and hence on their capital structure.

Design/methodology/approach

The relation between the cost of capital (debt and equity capital) and the leverage of firms in the period from 2000 to 2011 is analyzed by means of regression models with panel data. For this purpose, different proxies are used for the cost of equity and debt capital.

Findings

The results provide strong evidence that Brazilian firms take advantage of windows of opportunity to obtain financing, and that when the cost of equity capital is high, firms appear to follow a pecking order, giving preference to debt financing. However, the decision is based on the cost of alternative sources of funding rather than just on the hierarchy established by the pecking order theory, due to the information asymmetry between market agents.

Originality/value

Few studies of the Brazilian capital market have analyzed firms’ capital structure under the market timing approach, and none have addressed the same aspects analyzed here. Therefore, this paper will be useful to different users of accounting information by indicating the factors that influence the capital structure of Brazilian firms, allowing a better analysis of whether these firms act to maximize the generation of shareholder wealth.

Details

International Journal of Managerial Finance, vol. 11 no. 3
Type: Research Article
ISSN: 1743-9132

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Book part
Publication date: 11 November 2014

Tatiana Albanez and Gerlando Augusto Sampaio Franco de Lima

According to the market timing theory, firms try to take advantage of windows of opportunity to raise capital by exploiting temporary cost fluctuations of alternative financing…

Abstract

Purpose

According to the market timing theory, firms try to take advantage of windows of opportunity to raise capital by exploiting temporary cost fluctuations of alternative financing sources. In this context, the main objective of this paper is to examine the influence and persistence of market timing in the financing decisions of Brazilian firms that launched IPOs in the period from 2001 to 2011.

Methodology/approach

We analyze the influence of past market values on the capital structure of these firms, based on the main models proposed by Baker and Wurgler (2002), adapted to reflect the characteristics of Brazilian firms’ financial statements.

Findings

We find evidence of market timing, but this behavior is not sufficiently persistent in the period studied to the point of determining these firms’ capital structure. We believe the fact that Brazilian companies rarely carried out follow-on primary equity issues after floating their capital in the period analyzed, due to the presence of more advantageous financing sources (particularly from the national development bank, BNDES), explains the results. Therefore, Brazilian firms appear to be pay heed to different funding sources, in search of windows of opportunity, to guide their financing decisions and determine their capital structures.

Originality/value

The Brazilian capital market has been developing intensely in recent years, making it increasingly relevant to analyze the financing and investment decisions of the country’s listed companies. The Brazilian literature on capital structure is extensive, but few works have addressed the issue of market timing.

Details

Emerging Market Firms in the Global Economy
Type: Book
ISBN: 978-1-78441-066-7

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Book part
Publication date: 11 November 2014

Abstract

Details

Emerging Market Firms in the Global Economy
Type: Book
ISBN: 978-1-78441-066-7

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