Capital structure and macroeconomic factors in Latin America

Abstract

Recent empirical evidence suggests that country-specific factors are major determinants of patterns of capital structure in emerging markets. These country-specific factors include the institutional framework, legal and accounting practices, the financial infrastructure, and the macroeconomic environment. In this paper, it will be investigated in what extent macroeconomic factors are determinants of capital structures in a sample of firms from seven Latin American countries: Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. Employing a Panel Data framework with several measures of leverage, the findings suggest that, contrary to previous studies, country-specific factors although important, are not decisive determinants of the leverage ratio. Moreover, idiosyncratic firm-specific factors emerge as major determinants of capital structure for the sample of firms studied.