Financial Management in Practice: Analysis of Brazilian Survey Data

Abstract

Objective: this article replicates in Brazil a survey - previously applied in North America and Europe - to inquire CFOs about the cost of capital, capital budgeting, and capital structure. Method: we rigorously translated and validated the questionnaire before administering it over the internet. We delivered the questionnaire to 1,699 Brazilian private and public firms and received 160 responses, with a return rate of 9.4%. We analyzed the responses conditioned to firm characteristics. Results: the results of the financial policy survey in Brazil indicate that firms employ NPV and IRR as preferred investment techniques and the CAPM and its variations as the method for computing the cost of equity capital. They are also concerned with the cost of debt and transaction costs of market instruments, and they use internal funds as their main investment funding source. The conditional analysis indicates that large, listed, and regulated firms behave differently regarding financial decisions than their counterparts. Conclusion: the main takeaway from this study is that the institutional environment (markets, institutions, instruments, and the economy) is an important determinant of the practice of corporate finance.