Abstract

GIL-LEON, José Mauricio; ROSSO-MURILLO, John William  and  OCAMPO-RODRIGUEZ, Juan Diego. Level of leverage and business financial stability: Case of firms from Colombia and Argentina. Finanz. polit. econ. [online]. 2018, vol.10, n.2, pp.309-325. ISSN 2248-6046.  https://doi.org/10.14718/revfinanzpolitecon.2018.10.2.4.

This paper aims to explain the effect of financial instability on the capital structure of firms in two emerging markets: Colombia and Argentina. For the analysis, the study uses an unbalanced panel dataset with 167 companies, with quarterly data between 2005 and 2015, and regressions with the random-effects method. The results show that lower liquidity level and losses during two or more consecutive quarters increase the level of leverage in companies; therefore, signs of financial insolvency lead firms to become over-indebted and to reproduce the same conditions that lead to the emergence of a financial crisis.

Keywords : financial crisis; financial stability; capital structure; level of leverage.

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