Testing alternative theories on the capital structure of Brazilian firms

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Otávio Ribeiro de Medeiros
Cecílio Elias Daher


The paper documents results of empírical tests involving two models applied to the capital structure of Brasilian firms. The models tested were developed under the two theories competing for the determination of the capital structure of firms in the academic literature: the Static Tradeoff Theory and the Pecking Order Theory. The methodology involves the utilization of panel-data econometric techniques, aiming to establish which of the two theories has higher explanatory power for the Brazilian firms. The analisis utilized three types of models: common coeficients, fixed effects, and random effects. Additional statistical tests were also employed to confirm the robustness of results. The sample consists of non-financial firms listed in the Sao Paulo stock exchanges (BOVESPA and SOMA) from 1995 to 2002. The analysis of the results obtained led to the conclusion that the Pecking Order Theory in its semi-strong form provides the best explanation for the capital structure of Brazilian firms.


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Medeiros, O. R. de, & Daher, C. E. (1). Testing alternative theories on the capital structure of Brazilian firms. Journal of Contemporary Administration, 12(1), 177-199. https://doi.org/10.1590/S1415-65552008000100009