Financing Decisions of Companies Listed in the Different Segments of Corporate Governance of BM&FBovespa According to Pecking Order Theory

Abstract

Among the various theories about capital structure is Pecking Order theory, which establishes a hierarchy of preferences for sources of funding due to the existence of information asymmetry. In this paper, we seek to verify if this theory applies to the financing decisions of Brazilian companies that are listed in the different segments of corporate governance of BMF&Bovespa, analyzing whether, in the 2010-2014 period, a higher level of corporate governance implies lower adherence to this theory. Descriptive analysis and panel data models are used. The main finding is that Pecking Order theory works better in the traditional segment, confirming that greater information asymmetry leads to greater reliance on debt to finance deficits in the flow of funds. While the results found with respect to the traditional segment provide some support to Pecking Order theory, evidence suggests that the theory exerts less influence on the Novo Mercado segment, represented by the companies with the highest level of corporate governance and lowest degree of information asymmetry. There is evidence, therefore, that Pecking Order theory does not explain the financing decisions of Brazilian companies that have highly differentiated standards of corporate governance.