Capital Structures in Developing Countries: The Latin American case

Rajan and Zingales (1995) find that tangibility, growth opportunity, size and performance are the four common determinants for explaining capital structure across G-7 countries. In this study, we consider a sample of 590 firms from Argentina, Chile, Mexico, Peru and the United States (U.S.), to analyze whether the four common determinants also explain the capital structure in the Latin American countries. Moreover, we use a different sample of companies and a large number of years for U.S. firms and we find similar results to those reported by Rajan and Zingales (1995) more than a decade ago.. As expected, we report similar results for Chilean firms as the updated results for U.S. firms. The capital structure of Chilean firms is: positively related to tangible assets; negatively related to growth opportunities; positively related to size and negatively related to performance. This is not only true for book leverage but also for market leverage. The rest of Latin American countries show mixed results. In any case, we find two or three determinants to be statistically significant. However, those determinants are not the same when we use book leverage versus market leverage.