Corporate Governance and Capital Structure in Brazil: Stock, Bonds and Substitution

Abstract

Este artigo pode ser copiado, distribuído, exibido, transmitido ou adaptado desde que citados, de forma clara e explícita, o nome da revista, a edição, o ano e as páginas nas quais o artigo foi publicado originalmente, mas sem sugerir que a RAM endosse a reutilização do artigo. Esse termo de licenciamento deve ser explicitado para os casos de reutilização ou distribuição para terceiros. Não é permitido o uso para fins comerciais. ABSTRACTPurpose: To study the Brazilian bond and stock markets for testing the stock market development theory of Demirgüc-Kunt and Maksimovic (1996). 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. KEYWORDSStock market development. Bond market development. Capital structure. Corporate governance. Bond and stock complementarity hypothesis.

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“…The effect of the variable NM on the dependent variable was different to what would be expected, since the literature points out that corporate governance has an important role to expand the capital market and the market of corporate bonds (Ripamonti & Kayo, 2016).…”

Material internal control weakness with intangible assets, capital structure and commercial risk

“…Smith et al (2015) show that compared with low-leverage firms (those firms that debts paly a less significant role in their capital structure than equity), the capital structure of high-leverage firms (those firms that debts play a more significant role in their capital structure than equity) get closer to optimum capital structure with a higher speed. Ripamonti and Kayo (2016) find that improving corporate governance quality contributes both to equity and debt in the capital structure. Yazdani and Heidarzadeh Hanzaei (2016) notice that capital structure has a negative and significant relationship with independent variables of equity return on assets and firm size, but it is associated positively and significantly with expected return on stocks and has no relationship with the variables of the corporate governance system, assets growth rate and operating income growth rate.…”

Efeito do Ciclo de Vida na Relação entre Qualidade da Governança Corporativa e Custo da Dívida das Empresas Abertas no Brasil

“…However, this relationship is not linear, and this cannot be assumed as a rule, especially in markets where there is evidence that the growth of the stock market is not a natural substitute for the credit market, as noted by Ripamonti and Kayo (2016). These authors note that in Brazil there is evidence of a complementary relationship between these markets.…”

“…In emerging countries, where the stock market is less developed, this phenomenon is even more common. In Brazil, Ripamonti, and Kayo (2016) highlight that the existence of better corporate governance practices among firms does not mean a replacement of debt with equity, but rather that there is a complementarity effect between these two sources of capital. Therefore, in this context, debt continues to play a prominent role in financing corporate growth.…”