Financial Management in Practice: Analysis of Brazilian Survey Data
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Cristiane Benetti
Paulo Renato Soares Terra
Roberto Frota Decourt
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.
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Benetti, C., Terra, P. R. S., & Decourt, R. F. (2021). Financial Management in Practice: Analysis of Brazilian Survey Data. Journal of Contemporary Administration, 26(6), e200419. https://doi.org/10.1590/1982-7849rac2022200419.en
Section
Theoretical-empirical Articles
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References
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Balbinotti, M. A. A., Benetti, C. & Terra, P. R. S. (2007). Translation and validation of the Graham-Harvey survey for the Brazilian context. International Journal of Managerial Finance, 3(1), 26-48. https://doi.org/10.1108/17439130710721644
Bancel, F. & Mittoo, U. R. (2004). Cross-country determinants of capital structure choice: a survey of European firms. Financial Management, 33(4), 103-132. https://www.jstor.org/stable/3666330
Block, S. B. (1999). A study of financial analysts: Practice and theory. Financial Analysts Journal, 55(4), 86-95. https://doi.org/10.2469/faj.v55.n4.2288
Beattie, V., Goodacre, A. & Thomson, S. J. (2006). Corporate financing decisions: UK survey evidence. Journal of Business Finance & Accounting, 33(9‐10), 1402-1434. https://doi.org/10.1111/j.1468-5957.2006.00640.x
Brav, A., Graham, J. R., Harvey, C. R. & Michaely, R. (2005). Payout policy in the 21st century. Journal of Financial Economics, 77(3), 483-527. https://doi.org/10.1016/j.jfineco.2004.07.004
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Bruner, R. F., Eades, K. M., Harris, R. S. & Higgins, R. C. (1998). Best practices in estimating the cost of capital: Survey and synthesis. Financial Practice and Education, 8(1), 13-28. Retrieved from https://www.hbs.edu/faculty/Pages/item.aspx?num=50378
Campos, A. L., Jucá, M. N. & Nakamura, W. T. (2016). Como os gestores brasileiros tomam suas decisões de custo de capital? Revista Base (Administração e Contabilidade) da UNISINOS, 13(4), 309-330. https://doi.org/10.4013/base.2016.134.04
Colla, P., Ippolito, F. & Li, K. (2020). Debt structure. Annual Review of Financial Economics, 12(1), 193-215. https://doi.org/10.1146/annurev-financial-012820-015057
David, M., Nakamura, W. T. & Bastos, D. D. (2009). Estudo dos modelos trade-off e pecking order para as variáveis endividamento e payout em empresas brasileiras (2000-2006). RAM. Revista de Administração Mackenzie, 10(6), 132-153. https://doi.org/10.1590/S1678-69712009000600008
Dhanani, A. (2005). Corporate dividend policy: The views of British financial managers. Journal of Business Finance & Accounting, 32(7‐8), 1625-1672. https://doi.org/10.1111/j.0306-686X.2005.00643.x
Dommeyer, C. J. & Moriarty, E. (2000). Comparing two forms of an e-mail survey: Embedded vs attached. International Journal of Market Research, 42(1), 1-10. https://doi.org/10.1177/147078530004200103
Eid, W. Junior (1996). Custo e estrutura de capital: O comportamento das empresas brasileiras. Revista de Administração de Empresas, 36(4), 51-59. https://doi.org/10.1590/S0034-75901996000400006
Epps, R. W. & Mitchem, C. E. (1994). A comparison of capital budgeting techniques with those used in Japan and Korea. Advances in International Accounting, 7, 205-214.
Farre-Mensa, J., Michaely, R. & Schmalz, M. (2014). Payout policy. Annual Review of Financial Economics, 6(1), 75-134. https://doi.org/10.1146/annurev-financial-110613-034259
Fensterseifer, J. E. & Saul, N. (1993). Investimentos de capital nas grandes empresas. Revista de Administração, 28(3), 3-12. Retrieved from http://www.spell.org.br/documentos/ver/18603/investimentos-de-capital-nas-grandes-empresas
Fensterseifer, J. E., Galesne, A. & Ziegelmann, J. (1987). A utilização de técnicas analíticas nas decisões de investimento de capital das grandes empresas no Brasil. Revista de Administração da Universidade de São Paulo, 22(4). Retrieved from http://www.spell.org.br/documentos/ver/18971/a-utilizacao-de-tecnicas-analiticas-nas-decisoes-de-investimento-de-capital-das-grandes-empresas-no-brasil
Gitman, L. J. & Forrester, J. R. Jr. (1977). A survey of capital budgeting techniques used by major US firms. Financial Management, 66-71. https://doi.org/10.2307/3665258
Gitman, L. J. & Mercurio, V. A. (1982). Cost of capital techniques used by major US firms: Survey and analysis of Fortune’s 1000. Financial Management, 21-29. https://doi.org/10.2307/3665228
Graham, J. R. & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Graham, J. R. & Leary, M. T. (2011). A review of empirical capital structure research and directions for the future. Annual Review of Financial Economics, 3(1), 309-345. https://doi.org/10.1146/annurev-financial-102710-144821
Hernández-Nieto, R. A. (2002). Contributions to statistical analysis. Mérida, ES: Universidad de Los Andes.
Jagannathan, R., Liberti, J., Liu, B. & Meier, I. (2017). A firm’s cost of capital. Annual Review of Financial Economics, 9(1), 259-282. https://doi.org/10.1146/annurev-financial-110716-032429
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329. https://www.jstor.org/stable/1818789
Klassen, R. D. & Jacobs, J. (2001). Experimental comparison of web, electronic and mail survey technologies in operations management. Journal of Operations Management, 19(6), 713-728. https://doi.org/10.1016/S0272-6963(01)00071-7
Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, 46(2), 97-113. https://www.jstor.org/stable/1910664
Maquieira, C. P., Preve, L. A. & Sarria-Allende, V. (2012). Theory and practice of corporate finance: Evidence and distinctive features in Latin America. Emerging Markets Review, 13(2), 118-148. https://doi.org/10.1016/j.ememar.2011.11.001
Neuhauser, K. L. (2007). Survey research in finance. International Journal of Managerial Finance, 3(1), 5-10. https://doi.org/10.1108/17439130710721626
Percival, J. (1993). Why don’t we just ask them? Financial Practice & Education, 3(2), 9-9.
Pike, R. (1996). A longitudinal survey on capital budgeting practices. Journal of Business Finance & Accounting, 23(1), 79-92. https://doi.org/10.1111/j.1468-5957.1996.tb00403.x
Poterba, J. M. & Summers, L. H. (1995). A CEO survey of US companies’ time horizons and hurdle rates. MIT Sloan Management Review, 37(1), 43-53. Retrieved from https://sloanreview.mit.edu/article/a-ceo-survey-of-us-companies-time-horizons-and-hurdle-rates/
Sangster, A. (1993). Capital investment appraisal techniques: a survey of current usage. Journal of Business Finance & Accounting, 20(3), 307-332. https://doi.org/10.1111/j.1468-5957.1993.tb00258.x
Saul, N. (1999, May). Critérios de decisão e avaliação de investimento nas grandes empresas do Brasil. Proceedings of the Congreso Latinoamericano de Estrategia SLADE, Buenos Aires, 13.
Stanley, M. T. & Block, S. B. (1984). A survey of multinational capital budgeting. Financial Review, 19(1), 36-54. https://doi.org/10.1111/j.1540-6288.1984.tb01083.x
Tani, B. B. & Albanez, T. (2016). Decisões de financiamento das companhias listadas nos diferentes segmentos de governança da BM&FBovespa segundo a teoria de pecking order. Contabilidade, Gestão e Governança, 19(2), 317-334. http://dx.doi.org/10.21714/1984-3925_2016v19n2a8
Vallerand, R. J. (1989). Vers une méthodologie de validation trans-culturelle de questionnaires psychologiques: Implications pour la recherche en langue française. Canadian Psychology/Psychologie Canadienne, 30(4), 662-680. https://doi.org/10.1037/h0079856
Arnold, G. C. & Hatzopoulos, P. D. (2000). The theory‐practice gap in capital budgeting: evidence from the United Kingdom. Journal of Business Finance & Accounting, 27(5‐6), 603-626. https://doi.org/10.1111/1468-5957.00327
Balbinotti, M. A. A., Benetti, C. & Terra, P. R. S. (2007). Translation and validation of the Graham-Harvey survey for the Brazilian context. International Journal of Managerial Finance, 3(1), 26-48. https://doi.org/10.1108/17439130710721644
Bancel, F. & Mittoo, U. R. (2004). Cross-country determinants of capital structure choice: a survey of European firms. Financial Management, 33(4), 103-132. https://www.jstor.org/stable/3666330
Block, S. B. (1999). A study of financial analysts: Practice and theory. Financial Analysts Journal, 55(4), 86-95. https://doi.org/10.2469/faj.v55.n4.2288
Beattie, V., Goodacre, A. & Thomson, S. J. (2006). Corporate financing decisions: UK survey evidence. Journal of Business Finance & Accounting, 33(9‐10), 1402-1434. https://doi.org/10.1111/j.1468-5957.2006.00640.x
Brav, A., Graham, J. R., Harvey, C. R. & Michaely, R. (2005). Payout policy in the 21st century. Journal of Financial Economics, 77(3), 483-527. https://doi.org/10.1016/j.jfineco.2004.07.004
Brounen, D., De Jong, A. & Koedijk, K. (2004). Corporate finance in Europe: Confronting theory with practice. Financial Management, 33(4), 71-101. https://www.jstor.org/stable/3666329
Bruner, R. F., Eades, K. M., Harris, R. S. & Higgins, R. C. (1998). Best practices in estimating the cost of capital: Survey and synthesis. Financial Practice and Education, 8(1), 13-28. Retrieved from https://www.hbs.edu/faculty/Pages/item.aspx?num=50378
Campos, A. L., Jucá, M. N. & Nakamura, W. T. (2016). Como os gestores brasileiros tomam suas decisões de custo de capital? Revista Base (Administração e Contabilidade) da UNISINOS, 13(4), 309-330. https://doi.org/10.4013/base.2016.134.04
Colla, P., Ippolito, F. & Li, K. (2020). Debt structure. Annual Review of Financial Economics, 12(1), 193-215. https://doi.org/10.1146/annurev-financial-012820-015057
David, M., Nakamura, W. T. & Bastos, D. D. (2009). Estudo dos modelos trade-off e pecking order para as variáveis endividamento e payout em empresas brasileiras (2000-2006). RAM. Revista de Administração Mackenzie, 10(6), 132-153. https://doi.org/10.1590/S1678-69712009000600008
Dhanani, A. (2005). Corporate dividend policy: The views of British financial managers. Journal of Business Finance & Accounting, 32(7‐8), 1625-1672. https://doi.org/10.1111/j.0306-686X.2005.00643.x
Dommeyer, C. J. & Moriarty, E. (2000). Comparing two forms of an e-mail survey: Embedded vs attached. International Journal of Market Research, 42(1), 1-10. https://doi.org/10.1177/147078530004200103
Eid, W. Junior (1996). Custo e estrutura de capital: O comportamento das empresas brasileiras. Revista de Administração de Empresas, 36(4), 51-59. https://doi.org/10.1590/S0034-75901996000400006
Epps, R. W. & Mitchem, C. E. (1994). A comparison of capital budgeting techniques with those used in Japan and Korea. Advances in International Accounting, 7, 205-214.
Farre-Mensa, J., Michaely, R. & Schmalz, M. (2014). Payout policy. Annual Review of Financial Economics, 6(1), 75-134. https://doi.org/10.1146/annurev-financial-110613-034259
Fensterseifer, J. E. & Saul, N. (1993). Investimentos de capital nas grandes empresas. Revista de Administração, 28(3), 3-12. Retrieved from http://www.spell.org.br/documentos/ver/18603/investimentos-de-capital-nas-grandes-empresas
Fensterseifer, J. E., Galesne, A. & Ziegelmann, J. (1987). A utilização de técnicas analíticas nas decisões de investimento de capital das grandes empresas no Brasil. Revista de Administração da Universidade de São Paulo, 22(4). Retrieved from http://www.spell.org.br/documentos/ver/18971/a-utilizacao-de-tecnicas-analiticas-nas-decisoes-de-investimento-de-capital-das-grandes-empresas-no-brasil
Gitman, L. J. & Forrester, J. R. Jr. (1977). A survey of capital budgeting techniques used by major US firms. Financial Management, 66-71. https://doi.org/10.2307/3665258
Gitman, L. J. & Mercurio, V. A. (1982). Cost of capital techniques used by major US firms: Survey and analysis of Fortune’s 1000. Financial Management, 21-29. https://doi.org/10.2307/3665228
Graham, J. R. & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Graham, J. R. & Leary, M. T. (2011). A review of empirical capital structure research and directions for the future. Annual Review of Financial Economics, 3(1), 309-345. https://doi.org/10.1146/annurev-financial-102710-144821
Hernández-Nieto, R. A. (2002). Contributions to statistical analysis. Mérida, ES: Universidad de Los Andes.
Jagannathan, R., Liberti, J., Liu, B. & Meier, I. (2017). A firm’s cost of capital. Annual Review of Financial Economics, 9(1), 259-282. https://doi.org/10.1146/annurev-financial-110716-032429
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329. https://www.jstor.org/stable/1818789
Klassen, R. D. & Jacobs, J. (2001). Experimental comparison of web, electronic and mail survey technologies in operations management. Journal of Operations Management, 19(6), 713-728. https://doi.org/10.1016/S0272-6963(01)00071-7
Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, 46(2), 97-113. https://www.jstor.org/stable/1910664
Maquieira, C. P., Preve, L. A. & Sarria-Allende, V. (2012). Theory and practice of corporate finance: Evidence and distinctive features in Latin America. Emerging Markets Review, 13(2), 118-148. https://doi.org/10.1016/j.ememar.2011.11.001
Neuhauser, K. L. (2007). Survey research in finance. International Journal of Managerial Finance, 3(1), 5-10. https://doi.org/10.1108/17439130710721626
Percival, J. (1993). Why don’t we just ask them? Financial Practice & Education, 3(2), 9-9.
Pike, R. (1996). A longitudinal survey on capital budgeting practices. Journal of Business Finance & Accounting, 23(1), 79-92. https://doi.org/10.1111/j.1468-5957.1996.tb00403.x
Poterba, J. M. & Summers, L. H. (1995). A CEO survey of US companies’ time horizons and hurdle rates. MIT Sloan Management Review, 37(1), 43-53. Retrieved from https://sloanreview.mit.edu/article/a-ceo-survey-of-us-companies-time-horizons-and-hurdle-rates/
Sangster, A. (1993). Capital investment appraisal techniques: a survey of current usage. Journal of Business Finance & Accounting, 20(3), 307-332. https://doi.org/10.1111/j.1468-5957.1993.tb00258.x
Saul, N. (1999, May). Critérios de decisão e avaliação de investimento nas grandes empresas do Brasil. Proceedings of the Congreso Latinoamericano de Estrategia SLADE, Buenos Aires, 13.
Stanley, M. T. & Block, S. B. (1984). A survey of multinational capital budgeting. Financial Review, 19(1), 36-54. https://doi.org/10.1111/j.1540-6288.1984.tb01083.x
Tani, B. B. & Albanez, T. (2016). Decisões de financiamento das companhias listadas nos diferentes segmentos de governança da BM&FBovespa segundo a teoria de pecking order. Contabilidade, Gestão e Governança, 19(2), 317-334. http://dx.doi.org/10.21714/1984-3925_2016v19n2a8
Vallerand, R. J. (1989). Vers une méthodologie de validation trans-culturelle de questionnaires psychologiques: Implications pour la recherche en langue française. Canadian Psychology/Psychologie Canadienne, 30(4), 662-680. https://doi.org/10.1037/h0079856