Analysis of the Capital Structure of Latin American Companies in Light of Trade-Off and Pecking Order Theories

The study of capital structure is one of the most relevant topics in finance because, despite the various theories that seek to explain it, there is still no consensus on the determining factors or the behaviors of financing decisions in companies. This study empirically analyzes the capital structure decisions of Latin American companies during the period of 2013–2023, in light of trade-off and pecking order theories. A panel data methodology was applied to 62 companies, using fixed and random effects models. The results show that, on average, companies correct around 5.80% of the gap between their current and optimal level of indebtedness per period, partially supporting the trade-off theory. However, the effects of the financial deficit on indebtedness are heterogeneous and, in most cases, inconsistent with the pecking order theory, especially in countries such as Colombia. It is concluded that country risk has a marginal influence on debt decisions, and the need to consider each country’s institutional and market particularities when analyzing the dynamics of capital structure in emerging economies is emphasized.

Authors

Institutions

Publication Details

Journal
Journal of risk and financial management
Published
2025-07-19
DOI
https://doi.org/10.3390/jrfm18070399
Citations
6
Primary Topic
Corporate Finance and Governance
Type
article
Field-Weighted Citation Impact
23.46
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

Analysis of the Capital Structure of Latin American Companies in Light of Trade-Off and Pecking Order Theories

Rolando Eslava Zapata, Sadan De la Cruz Almanza, Hugo A. Macías, Luis Fernando Castrillón Quintana et al.
6 citations
Journal of risk and financial management
Corporate Finance and Governance
23.46
article

Analysis of the Capital Structure of Latin American Companies in Light of Trade-Off and Pecking Order Theories

Rolando Eslava Zapata, Sadan De la Cruz Almanza, Hugo A. Macías, Luis Fernando Castrillón Quintana, Jesús Alexander Pinillos Villamizar
article en
6 citations

Abstract

The study of capital structure is one of the most relevant topics in finance because, despite the various theories that seek to explain it, there is still no consensus on the determining factors or the behaviors of financing decisions in companies. This study empirically analyzes the capital structure decisions of Latin American companies during the period of 2013–2023, in light of trade-off and pecking order theories. A panel data methodology was applied to 62 companies, using fixed and random effects models. The results show that, on average, companies correct around 5.80% of the gap between their current and optimal level of indebtedness per period, partially supporting the trade-off theory. However, the effects of the financial deficit on indebtedness are heterogeneous and, in most cases, inconsistent with the pecking order theory, especially in countries such as Colombia. It is concluded that country risk has a marginal influence on debt decisions, and the need to consider each country’s institutional and market particularities when analyzing the dynamics of capital structure in emerging economies is emphasized.

Journal of risk and financial managementVol. 18(7)
Universidad de Medellín (CO), University of Pamplona (CO), Universidad Libre de Colombia (CO)
Openalex Percentile: Top 1%
Corporate Finance and Governance
23.46
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.