تئوری و عمل امور مالی شرکت: شواهد و ویژگی های متمایز در امریکای لاتین

We survey 290 LATAM firms on capital budgeting, cost of capital and capital structure issues. We analyze the results and compare them to those of other studies. We interpret differences according to special features characterizing both emerging markets and SME. We observe that LATAM firms make use of standard capital budgeting techniques, but give special weight to liquidity and capital rationing considerations. They rely less on cost of capital formal estimations; rather, they use investors' requests as their primordial input. Finally, surveyed firms are less leveraged, and inclined toward stressing the role of internal financing and minimizing payment commitments.

It is well known that emerging markets pose not only an attractive but also a challenging business environment for firms expanding overseas. Corporate finance in emerging markets is a complex field for managers and academics. Most of the models used in investments and corporate finance have been developed under the assumption of — at least — moderately efficient markets, but this assumption seems to be questionable when moving to less developed markets. Emerging markets are not efficient markets; they are characterized by higher information asymmetries, higher transaction costs, more concentrated ownership, lack of market development, relatively low market liquidity, etc. Additionally, there are relevant differences in terms of suitability for the use of standard corporate finance techniques in the context of small and medium private enterprises. Yet, given that information is often lacking in emerging markets, and particularly, when referred to the subset of small and medium enterprises (SME), a deeper analysis is frequently postponed. In recent years, several scholars have devoted some attention to understand emerging markets special features, but there has not been a comprehensive study of how practitioners really make financial decisions in emerging markets.1 In this study we contribute to this field by surveying corporate finance practices in emerging markets. Building on the contribution of Graham and Harvey (2001), whose survey provides a comprehensive description of the current practices of corporate finance in the US public firms' universe, we expand the analysis to emerging markets, covering a quite different sample, mostly characterized by small and medium private Latin American firms. We design a survey in which we replicate Graham and Harvey's questions whenever applicable to the emerging market environment, and add a considerable number of queries that apply to the specific conditions prevalent in these markets. Similar to theirs, our survey copes with three basic topics: capital budgeting, estimation of the cost of capital, and capital structure. Given the significant differences between developed and emerging economies (in terms of currency stability, capital market development, liquidity, size, information availability, transaction costs, and a vast etcetera), and between large public and small and medium private firms (in terms of access to capital markets or outside equity, ownership structure, information asymmetries, etc.), we hope this survey will be useful to interpret particular corporate financial choices prevalent in settings that differ from those for which most models have been designed. The Fisher separation property, that sustains that the firm investment decision should be independent of its owners' preferences, and independent of the financing decision, is not likely to hold for many small and medium enterprises, and particularly, for those located in emerging markets. Therefore, the use of standard capital budgeting techniques is likely to be altered in these contexts. Capital constraints, concentrated ownership, and the common coincidence of manager–owner are features likely to favor methods stressing liquidity and uncertainty. Similarly, standard techniques for estimating the firms' cost of capital — particularly, the Capital Asset Pricing Model, CAPM — rely on assumptions that largely depart from the circumstances of small and medium firms and emerging markets. Once again, one would expect that small versus large businesses, private versus public firms, concentrated versus diluted ownership structures, etc., will cause discount rate estimations to depart from the CAPM figures. A one-factor model is likely to fall short in capturing some of these features. Finally, differences in tax treatment, rule of law and investor protection,2the lack of separation between management and ownership — that characterizes many small businesses, the lack of development of public debt and equity markets in most emerging markets, etc., is likely to influence financing choices. We avoid surveying previous literature, already summarized in Graham and Harvey's study. Nevertheless, while discussing our results, we do mention some newer contributions as well as studies that make reference to the specific case of emerging markets and/or of small and medium private and public firms. A typical characteristic of emerging markets is the difficulty in obtaining information. This has influenced our study since we could not rely on a central database to target the survey. To circumvent this problem, the questionnaire was distributed through several leading Latin American Business Schools in different countries, which selected a sample set from their alumni databases. The main advantage of this approach is that we obtained a high absolute number of responses; the major drawback is that, in most cases, we have not been able to estimate a respondent rate.3Another consideration is the potential bias in our sample; most of the surveyed managers were part of the alumni network of an important local business school; this might bias our results toward a more sophisticated type of participant. We believe, however, that this is unlikely to cause a significant bias in our study, since the database is not composed only of MBAs but also of participants in shorter executive education programs, with lower exposure to corporate finance training. Additionally, the participants were in charge of introducing the survey in their companies, but not necessarily involved in the provision of actual responses. Finally, this study also suffers from all the potential problems found in all surveys; as noted by previous studies, managers respond with their beliefs, not necessarily with their actions; they could have misunderstood the questions; and the survey might not capture a representative sample of the population. Following Graham and Harvey, we analyze all the answers considering several firms' characteristics; this allows us to explain the cross sectional differences of firms' behavior in emerging markets. We compare our results with those obtained by Graham and Harvey in their survey of a US sample of firms. Despise critical dissimilarities in the sample composition, this allows us to perform a first coarse and direct analysis of differences in corporate finance practices between emerging and established financial markets. There is no other analogous survey targeted to a more comparable sample of firms, therefore, more suitable comparisons such as those between small and medium LATAM versus small and medium US firms (to analyze the market development dimension), and/or between small and medium private LATAM versus large public LATAM firms (to analyze the size dimension), are not feasible. Nevertheless, we perform indirect comparison to these samples, by contrasting our results with those obtained in previous related research. 4 Our main results show that when it comes to capital budgeting, small and medium firms in Latin America present decision patterns that can be considered quite similar to those of US public firms. The few specific differences seem to result from a reasonable adjustment to the region's lower development of the financial markets and to the set of available financing options for small and medium firms. For example, we find that enterprises in our sample appear to put more weight on liquidity and capital rationing considerations than large public firms in efficient markets. The results on cost of capital and capital structure, however, show more profound deviations with respect to the responses obtained by Graham and Harvey for the US sample. Not surprisingly, we find that fewer firms estimate the cost of capital, and that the actual estimations are more likely to be based on whatever investors require than on traditional techniques such as the Capital Asset Pricing Model (CAPM). For those firms actually performing CAPM estimations, we examine both inputs and potential adjustments to the model. Finally, Latin American firms in our sample prove to be less levered, and to assign different weight to standard capital structure decisions criteria. This result differ from those obtained for the US sample, as well as for a different subset of Latin American larger and public firms (see Céspedes et al., 2010); consequently, not only market development but also a size dimension (access to capital and financial markets) is likely to be influencing this choice.5 Ultimately, we find Latin American firms taking substantially different capital structure strategies; more specifically, they are prone to follow a pecking order financing, and to avoid extending equity financing not to risk losing control (as found in Céspedes et al., 2010).6 The examination of the complete set of responses, along with the cross sectional analysis performed in the paper, allows us to understand the specific choices of small and medium firms in Latin America in a more comprehensive manner. The rest of the paper is organized as follows: Section 2 describes the data and the methodology used in the survey. Section 3 discusses the design and main results of the questions related to capital budgeting; 4 and 5 describe the design and the analysis on cost of capital and capital structure, respectively. Finally, Section 6 concludes.

This paper presents the results of a survey to 290 Latin American firms. We analyze three main topics related to the practice of corporate finance; capital budgeting, cost of capital and capital structure. Despite differences in sample composition, the results are analyzed not only for the Latin American sample as a whole, across differential firm characteristics, but also in comparison with the US sample results obtained in Graham and Harvey (2001). The analysis is interesting and intuitive, and is extended to more comparable groups (both US small and medium firms, and broader emerging market companies), by making references to previous findings. Even though we observe several decision-making patterns that resemble those prevalent among US large firms, we also identify choices that differ substantially from what theory suggests and from what US large firms do. Most of these choices are reasonably explained by both/either small and medium firm characteristics and/or special features characterizing emerging markets as a whole. Regarding capital budgeting, we find that Latin American firms — similar to US firms — use NPV and IRR as the main tools for analyzing investments; yet, our survey suggests that firms in emerging markets tend to make a more extensive use of Payback and the Profitability Index than their US counterparties. The extensive use of these tools seems to be aligned with the particular instability and market development of Latin American countries and to the specific choices among small and medium firms — even those located in the US market. The main differences in the financial management of firms in our sample are found in the estimation of the cost of capital and capital structure decisions. We find that fewer firms estimate the cost of capital (relative to the US sample); when firms pursue a cost of capital estimation, they seem to rely primarily on what shareholders actually seek as an expected return. This behavior is consistent with the existence of smaller number of shareholders and arm's length transactions between the management and the shareholders. Additionally, we find that the (smaller number of) firms that try to use CAPM tend to have problems in adapting it to the local environment. We report that Latin American small and medium firms lean toward lower leverage ratios, shorter debt maturity, and less use of target debt-equity ratios. They additionally tend to favor internally generated funds, and do not seem to put comparable weight on most of the aspects that theory suggests that should shape the capital structure choice. It is interesting that some even argue that cost of equity is cheaper and less risky than cost of debt (since they avoid getting trapped on pre-defined promised payments). In sum these results suggest that some aspects of the financial theory seem to be frequently adapted when taking decisions in emerging markets and, most particularly, among the subset of small and medium firms. More sophisticated firms (in terms of size, dividend policy, age and qualification of CFOs, share of foreign sales, etc.) select corporate choices most coincident with those prevalent among US large firms. But differences intensify for the rest of the sample. For these cases, we provide several potential intuitions between corporate practice and local market conditions. It would be interesting to continue this line of research by running a more direct comparison between small and medium businesses practices in developed and developing countries, and how they correlated to differential market conditions. Nevertheless, data would be a great challenge for pursuing this task.