CORPORATE GOVERNANCE AND CAPITAL STRUCTURE IN BRAZIL: STOCK, BONDS AND SUBSTITUTION

RIPAMONTI, ALEXANDRE; KAYO, EDUARDO KAZUO

doi:10.1590/1678-69712016/administracao.v17n5p85-109

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Strategic Finances • RAM, Rev. Adm. Mackenzie 17 (5) • Sep-Oct 2016 • https://doi.org/10.1590/1678-69712016/administracao.v17n5p85-109 copy

CORPORATE GOVERNANCE AND CAPITAL STRUCTURE IN BRAZIL: STOCK, BONDS AND SUBSTITUTION

GOVERNANÇA CORPORATIVA E ESTRUTURA DE CAPITAL NO BRASIL: AÇÕES, DÍVIDAS E SUBSTITUIÇÃO

GOBIERNO CORPORATIVO Y ESTRUCTURA DE CAPITAL EN BRASIL: ACCIONES, DEUDAS Y REEMPLAZO

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

Purpose:

To study the Brazilian bond and stock markets for testing the stock market development theory of Demirgüc-Kunt and Maksimovic (1996)Demirgüc-Kunt, A., & Levine, R. (1996). Stock market development and financial intermediaries: stylized facts. The World Bank Economic Review, 10(2), 291-321..

Originality/gap/relevance/implications:

This paper tests the substitution hypothesis of stock market development, from debt to stocks, in a context of improved corporate governance, by analyzing the data with cointegration techniques. The findings show that the rejection of substitution hypothesis, as the bond market has a positive and significant association with stock market improvements. The findings also show that improving the quality of corporate governance could lead equity capital and borrower capital sources to be complementary and not substitutes, suggesting that Brazilian stock market reform has created a virtuous development cycle.

Key methodological aspects:

Positivist research using quantitative methodology. Data from a sample of 171 firms during 20 years, analyzed with cointegration. The null was a negative association between bond and stock markets.

Summary of key results:

Null rejection, non-consistent to theoretical framework. The results have shown a positive and significant association between stock and debt in an improved corporate governance context.

Key considerations/conclusions:

Improving the quality of corporate governance could lead equity capital and borrower capital sources to be complementary, and not substitutes, suggesting that Brazilian stock market reform has created a virtuous development cycle.

KEYWORDS:
Stock market development; Bond market development; Capital structure; Corporate governance; Bond and stock complementarity hypothesis

VARIABLE	DESCRIPTION	SOURCE	REASON
Debt on Equity (D/E)	Total debt scaled on stock market value	Economática	Leverage, representing bond and stock market development (Demirgüc-Kunt & Maksimovic, 1996Demirgüc-Kunt, A., & Maksimovic, V. (1996). Stock market development and financing choices of firms. The World Bank Economic Review, 10(2), 341-369.)
Return (Ret)	Stock market value on lagged stock market value	Economática	Stock market development measure (Demirgüc-Kunt Maksimovic, 1996Demirgüc-Kunt, A., & Maksimovic, V. (1996). Stock market development and financing choices of firms. The World Bank Economic Review, 10(2), 341-369.)
Debt (D)	Total debt	Economatica	Bond market development measure (Demirgüc-Kunt & Maksimovic, 1996Demirgüc-Kunt, A., & Maksimovic, V. (1996). Stock market development and financing choices of firms. The World Bank Economic Review, 10(2), 341-369.)
Market capitalization (Mcap)	Stock market value	Economatica	Stock market development measure
Size (S)	Logarithm of total sales	Economatica	Control variable (Titman & Wessels, 1988Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19. Retrieved May 2, 2014, from http://links.jstor.org/sici?sici=0022-1082%28198803%2943%3A1%3C1%3ATDOCSC%3E2.0.CO%3B2-A http://links.jstor.org/sici?sici=0022-10... )
Tangibility (Tang)	Property, plant and equipment on total assets	Economatica	Control variable (Titman & Wessels, 1988Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19. Retrieved May 2, 2014, from http://links.jstor.org/sici?sici=0022-1082%28198803%2943%3A1%3C1%3ATDOCSC%3E2.0.CO%3B2-A http://links.jstor.org/sici?sici=0022-10... )
Growth (G)	Market value of enterprise on total assets	Economatica	Control variable (Titman & Wessels, 1988Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19. Retrieved May 2, 2014, from http://links.jstor.org/sici?sici=0022-1082%28198803%2943%3A1%3C1%3ATDOCSC%3E2.0.CO%3B2-A http://links.jstor.org/sici?sici=0022-10... )

VARIABLE	OBS	MEAN	STD. DEV.	MIN	MAX
COMPLETE SAMPLE
D	80	27031,67	59752,81	0	199120,6
Mcap	80	305092,8	330401,1	125,0934	1030710
D/E	80	0,1929855	0,2660535	0	1,208206
Ret	79	10,34699	58,40298	0,0029442	406,3346
S	79	7,303214	3,813907	2,190773	12,82549
Tang	79	106,0721	195,1595	1,321277	544,8085
G	79	1,238983	0,5080306	0,0033429	2,34789
NOVOMERCADO
D	80	42,76305	52,68383	0	179,8991
Mcap	80	104,1658	115,9877	1,781375	339,2237
D/E	80	0,4731749	0,392733	0	2,307404
Ret	79	1,098249	0,2637436	0,512116	2,077643
S	79	2,570925	1,904365	-1,85915	5,368668
Tang	79	0,3433495	0,0927787	0,1839566	0,5827093
G	79	2,195123	3,185442	0,3666426	14,10159
OTHER SEGMENTS
D	80	26988,9	59708,33	0	199084
Mcap	80	304988,6	330289,4	123,2232	1030445
D/E	80	0,1934474	0,2691429	0	1,243467
Ret	79	11,116	63,17201	0,0026851	435,8956
S	79	7,254973	3,844536	2,173196	12,82492
OTHER SEGMENTS
Tang	79	0,4634454	0,2581408	0,001739	0,7608917
G	79	1,231889	0,5048354	0,0032033	2,348201

	CONSTANT			RCONSTANT			TREND			RTREND			NONE
	COEF.	p		COEF.	p		COEF.	p		COEF.	p		COEF..	p
FULL SAMPLE
D	1,0000			1,0000			1,0000			1,0000			1,0000
Mcap	-2,2201	0,000	^ p.01;	-2,2382	0,000	^* ***** p.001.	-0,0697	0,773		-0,0694	0,775		0,6293	0,000	^* ***** p.001.
S	246622,10	0,000	^ p.01;	248962,30	0,000	^* ***** p.001.	127643,50	0,000	^* ***** p.001.	127890,70	0,000	^* ***** p.001.	-92295,19	0,000	^* ***** p.001.
Tang	-599,7284	0,177		-608,9677	0,175		-16,5888	0,929		-17,0652	0,927		729,0380	0,000	^* ***** p.001.
G	123799,90	0,469		122846,60	0,477		-36004,86	0,611		-36401,53	0,608		288939,90	0,000	^* ***** p.001.
_trend							-5804,78	–		-16313,91	0,000	^* ***** p.001.
_cons	-792634,50	–		-1239649,00	0,000	^* ***** p.001.	37178,61	–		429585,10	–
	STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK
Trace	46,3003	1		50,1584	1		50,2560	1		55,8819	1		18,2358	1
Max	6,2987	2		8,0447	2		9,9364	2		9,9395	2		8,7988	1
NOVOMERCADO
D	1,0000			1,0000			1,0000			1,0000			1,0000
Mcap	2,1042	0,000	^ p.01;	2,1201	0,000	^* ***** p.001.	0,0497	0,935		0,0461	0,940		2,0388	0,000	^* ***** p.001.
NOVOMERCADO
S	-194,1758	0,000	^ p.01;	-195,4871	0,000	^* ***** p.001.	372,5698	0,000	^* ***** p.001.	369,8991	0,000	^* ***** p.001.	-184,9566	0,000	^* ***** p.001.
Tang	820,4475	0,003	^ p.01;	824,9173	0,004	^ p.01;	-915,2639	0,005	^ p.01;	-909,8051	0,005	^ p.01;	866,8196	0,000	^* ***** p.001.
G	-37,6202	0,000	^ p.01;	-37,9664	0,000	^* ***** p.001.	1,8773	0,880		1,7508	0,887		-33,6166	0,000	^* ***** p.001.
_trend							-34,8432	–		-30,6814	0,000	^* ***** p.001.
_cons	-159,7648	–		43,2287	0,699		387,9523	–		217,0951	–
	STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK
Trace	40,9219	1		45,0826	1		47,6738	1		50,5311	1		35,8452	1
Max	26,8461	1		26,9489	1		29,2260	1		29,4478	1		7,8723	2
OTHER SEGMENTS
D	1,0000			1,0000			1,0000			1,0000			1,0000
Mcap	-5,4130	0,000	^ p.01;	-5,5810	0,000	^* ***** p.001.	-0,0689	0,816		-0,0688	0,817		0,1605	0,006	^ p.01;
S	630131,50	0,000	^ p.01;	651062,80	0,000	^* ***** p.001.	151206,80	0,000	^* ***** p.001.	151662,80	0,000	^* ***** p.001.	-41720,29	0,000	^* ***** p.001.
Tang	1687359,00	0,057	t	1753318,00	0,055	t	95782,55	0,584		96757,06	0,581		-281773,30	0,003	^ p.01;
OTHER SEGMENTS
G	-44652,27	0,921		-53554,67	0,908		-86027,47	0,328		-86730,80	0,326		273780,10	0,000	^* ***** p.001.
_trend							-7986,91	–		-19155,90	0,000	^* ***** p.001.
_cons	-2576019,00	–		-3744784,00	0,000	^* ***** p.001.	11002,48	–		426161,00	–
	STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK
Trace	42,1898	1		46,0006	1		46,8958	1		52,1793	1		22,5979	1
Max	6,3163	2		8,2656	2		10,6161	2		10,8142	2		11,8273	1
FULL SAMPLE
D/E	1,0000			1,0000			1,0000			1,0000			1,0000
Ret	-0,0110	0,000	^* ***** p.001.	-0,0110	0,000	^* ***** p.001.	-0,0107	0,000	^* ***** p.001.	-0,0107	0,000	^* ***** p.001.	-0,0202	0,000	^* ***** p.001.
S	0,0248	0,000	^* ***** p.001.	0,0248	0,000	^* ***** p.001.	0,0534	0,039	^* * p.05;	0,0537	0,038	^* * p.05;	0,0202	0,042	^* * p.05;
Tang	0,0008	0,000	^* ***** p.001.	0,0008	0,000	^* ***** p.001.	0,0007	0,000	^* ***** p.001.	0,0007	0,000	^* ***** p.001.	0,0006	0,000	^* ***** p.001.
G	0,2109	0,000	^* ***** p.001.	0,2109	0,000	^* ***** p.001.	0,1749	0,002	^ p.01;	0,1739	0,002	^ p.01;	-0,1568	0,006	^ p.01;
_trend							-0,0031	–		-0,0037	0,259
_cons	-0,5985	–		-0,5999	0,000	^* ***** p.001.	-0,6425	–		-0,6220	–
	STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK
Trace	18,3403	2		27,8549	2		25,6296	2		26,8658	2		18,2010	2
Max	9,8495	2		12,9349	2		17,7355	2		17,7356	2		10,8531	2
NOVOMERCADO
D/E	1,0000			1,0000			1,0000			1,0000			1,0000
Ret	-12,7972	0,000	^* ***** p.001.	-11,9708	0,000	^* ***** p.001.	-11,8652	0,000	^* ***** p.001.	-11,7944	0,000		-1,0851	0,000	^* ***** p.001.
S	-0,3444	0,001	^* ***** p.001.	-0,2786	0,003	^ p.01;	-1,8604	0,004	^ p.01;	-1,6903	0,009	^ p.01;	0,0533	0,034	^* * p.05;
Tang	-1,4062	0,287		-1,1490	0,340		3,5465	0,098	t	2,9265	0,179		0,2845	0,452
G	0,1057	0,201		0,0739	0,327		-0,0438	0,564		-0,0043	0,956		0,1690	0,000	^* ***** p.001.
_trend							0,0503	–		0,1074	0,030	^* * p.05;
_cons	15,2534	–		12,8816	0,000	^* ***** p.001.	14,7064	–		12,4050	.
	STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK
Trace	17,9173	2		26,2040	2		7,9380	3		12,1196	3		11,7242	2
Max	8,3084	2		15,1584	2		6,9017	3		6,9665	3		7,2698	2
OTHER SEGMENTS
D/E	1,0000			1,0000			1,0000			1,0000			1,0000
Ret	-0,0112	0,000	^ p.01;	-0,0112	0,000	^* ***** p.001.	-0,0111	0,000	^* ***** p.001.	-0,0111	0,000	^* ***** p.001.	-0,0144	0,000	^* ***** p.001.
S	0,0206	0,000	^ p.01;	0,0206	0,000	^* ***** p.001.	0,0337	0,210		0,0341	0,206		0,0183	0,003	^ p.01;
Tang	-0,4988	0,000	^* ***** p.001.	-0,4987	0,000	^* ***** p.001.	-0,4708	0,000	^* ***** p.001.	-0,4700	0,000	^* ***** p.001.	-0,5473	0,000	^* ***** p.001.
G	0,1686	0,001	^ p.01;	0,1685	0,001	^* ***** p.001.	0,1488	0,011	^ p.01;	0,1478	0,012	^ p.01;	0,0665	0,218
_trend							-0,0016	–		-0,0017	0,619
_cons	-0,1983	–		-0,2015	0,001	^* ***** p.001.	-0,2226	–		-0,2221	–
	STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK		STATISTIC	RANK
Trace	21,2084	2		28,6754	2		31,6413	2		32,2123	2		19,4473	2
Max	13,4496	2		14,6784	2		22,5154	2		22,5154	2		12,8706	2

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[TFN8] Source: Elaborated by the authors, upon the premises of Demirgüc-Kunt and Maksimovic (1996)Demirgüc-Kunt, A., & Maksimovic, V. (1996). Stock market development and financing choices of firms. The World Bank Economic Review, 10(2), 341-369. and Titman and Wessels (1988)Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19. Retrieved May 2, 2014, from http://links.jstor.org/sici?sici=0022-1082%28198803%2943%3A1%3C1%3ATDOCSC%3E2.0.CO%3B2-A
http://links.jstor.org/sici?sici=0022-10... .