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Problems in measuring capital structure: empiric evidence in Brazil

Author

Listed:
  • Márcio André Veras Machado

    (Paraíba Federal University)

  • Otavio Ribeiro de Medeiros

    (University of Brasília)

  • William Eid Júnior

    (Getulio Vargas Foundation)

Abstract

This empiric-analytic paper, aims at verifying whether the firms’ capital structure is sensitive to leverage measures. It also verifies whether most of the leverage variability is due to financial debts. The sample consists of all non-financial companies with data available, positive equity and stocks listed in Bovespa between 1995 and 2007. Accordingly, we sampled on average 133 companies per year. The data required for the analysis were extracted from the Economatica database. In the methodology section we used cross-section linear regression in order to estimate the coefficients and other statistics of interest, following the methodology of Fama and MacBeth (1973). As main results, more than half of the cross-section heterogeneity of the leverage ratio comes from variations on the Non-financial Debts/Total Assets ratio. With respect to the sensibility of the measures used for the leverage, we conclude that profitability is the only variable that is reasonably consistent, in magnitude, sign and significance, with the different measures of leverage.

Suggested Citation

  • Márcio André Veras Machado & Otavio Ribeiro de Medeiros & William Eid Júnior, 2010. "Problems in measuring capital structure: empiric evidence in Brazil," Brazilian Business Review, Fucape Business School, vol. 7(1), pages 23-41, January.
    • Handle: RePEc:bbz:fcpbbr:v:7:y:2010:i:1:p:23-41
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    References listed on IDEAS

    as
    1. Júlio Cesar G. da Silva & Ricardo D. Brito, 2004. "Testando as Previsões de Trade-off e Pecking Order sobre Dividendos e Dívida para o Brasil," Finance Lab Working Papers flwp_65, Finance Lab, Insper Instituto de Ensino e Pesquisa.
    2. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
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    Cited by:

    1. Philip Arthur, 2019. "Effects of Capital Structure on Profitability of the Manufacturing Industry: Testing the Fixed and Random Effect Model on Selected Firms in Ghana," Journal of Asian Business Strategy, Asian Economic and Social Society, vol. 9(2), pages 204-219, December.

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