Block ownership by families and financial constraints for investment in Brazil

Informações

Código: FIN501
Divisão: FIN - Finanças
Tema de Interesse: Tema 06 - Teorias Macro e Microeconômicas Aplicadas a Finanças

Autores

Vicente Lima Crisóstomo, Félix Javier López Iturriaga, Eleuterio Vallelado González

Resumo

Some micro and macroeconomic market characteristics seem to be able to interfere oninvestment and financing policies. That may cause the existence of a link betweeninvestment and financing decisions. At micro economic level, the conflict of interestspredicted by the theory of the firm and information asymmetry is possibly one of theleading sources of such interdependence of investment process and financial decisions.Financial constraint is characterized as a situation in which the firm may be unable toobtain external financing due to its high cost, mainly as consequence of asymmetricinformation about firms’ projects, being the firm directed to rely on internally generatedfunds to undertake their investment projects. Prior relevant literature has found evidence ofthe existence of financial constraints in different markets. Possible factors that may affectthe intensity of financial constraints have also been the focus of more recent studies. In thiscontext, firm characteristics like firm size, access to bond market or dividend policy havebeen considered as able to signal financial constraints. More recently, ownership structurehas been taken into consideration as another firm characteristic able to interfere in theintensity of financial constraints. Evidence has been found for ownership concentration,and, more recently, the identity of block ownership have also been taken into account andinvestigated as able to moderate firm access to external finance. The purpose of this work isinvestigating whether family ownership in Brazilian firm mitigates financial constraints.Some arguments in favor of family ownership for value creation have been presented inprevious literature. Such rationale, mainly related to the alignment of interests betweenownership and control and long term perspective associated to family reputation, can bealso considered in financing context. The estimation of dynamic investment models for apanel dataset of 289 nonfinancial Brazilian companies for the time period 1995-2006, in atotal of 2,808 firm year observations, has shown that, in fact, Brazilian firm faces financialconstraints. Most important, family firms have shown to face easier access to externalfinancing in Brazil. Models estimated are based on the Euler equation for optimal capitalaccumulation in the presence of convex adjustment costs, and controls for previousinvestment, output fluctuations, cash flow and leverage. Evidence has been found that firmswith relevant family ownership have their investment process not dependent on internallygenerated funds in contrast to the high dependence of the other firms. The attention given tofinancial constraints by academics from an international perspective and the growingvisibility of Brazil as an important emerging market justifies this research. The additionalevidence of financial constraints in Brazil signals for the need of more economic changes tostrengthen financial markets and mitigate such situations. Most important, evidence hasbeen found that family ownership is a firm characteristic that moderates financialconstraints in Brazil.

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