An empirical analysis of the external finance premium of public non-financial corporations in Brazil

Abstract

Our objective in this paper is to analyze empirically the relationship between the external finance premium of non-financial corporations in Brazil with their default probability and with their demand for inventories. As for the former relation, we find that corporations that have greater external finance premium have greater probability of default. As for the latter, we find that the external finance premium is positive and statistically significantly correlated. The results confirm previous results of the literature that indicate that the balance sheet channel of monetary policy is relevant in Brazil.<br>Nosso objetivo nesse trabalho é analisar empiricamente como o prêmio de financiamento externo de empresas não-financeiras no Brasil se relaciona com a probabilidade de default e com o nível de estoques. No primeiro exercício, as empresas com maior prêmio de financiamento externo apresentaram uma maior probabilidade de default. Com relação ao segundo exercício, o prêmio de financiamento externo apresentou uma correlação positiva e estatisticamente significante com o nível de estoques. A análise confirmou resultados anteriores da literatura que indicam que o canal do balanço patrimonial da política monetária é relevante para o Brasil

The External Finance Premium in Brazil: Empirical Analyses Using State Space Models

“…Similarly to Gertler and Gilchrist (1994), Oliveira concludes that smaller firms are more sensitive to EFP than large firms. Oliveira and Ronchi (2012) empirically analyze the relationship between the EFP of non-financial corporations in Brazil with their default probability and with their demand for inventories. They find that corporations with a greater EFP have a greater probability of default.…”

“…As an identification strategy for these equations, we assume (see Oliveira and Ronchi, 2012) that our signals are affected only by lags of EFP and not by its current value. We think that this is a reasonable assumption because it takes some time for inventories, debt, and operating revenues to adjust to the firm's financial conditions.…”