Analysis of the Capital Structure of Latin American Companies in Light of Trade-Off and Pecking Order Theories
Round 1
Reviewer 1 Report
Comments and Suggestions for AuthorsI appriciate the auuthors of this article. It is a good written and articulated.
Author Response
I sincerely appreciate your comment. Below, I provide a specific response, describing the action taken in the manuscript or, when applicable, the rationale behind the decision.
The final paragraph of the introduction has been revised and expanded to more clearly articulate the study’s added value. Specifically, we emphasize that this research goes beyond single-country or short-term empirical analyses by offering a multi-country comparison of Latin American firms over a recent ten-year period (2013–2023). This allows for the identification of regional patterns and structural differences across emerging markets. Additionally, we highlight the study’s contribution to the underexplored area of theoretical complementarity between the trade-off and pecking order theories. Finally, the revised paragraph introduces a broader fiscal and social perspective, linking capital structure decisions to economic development and equity. We believe these improvements address the reviewer’s suggestion and reinforce the clarity and originality of the study’s contribution.
Reviewer 2 Report
Comments and Suggestions for AuthorsBelow is structured evaluation of the paper including suggestions in each part:
Topicality and relevance: The paper deals with the topic of capital structure in companies within emerging economies (Latin America). This issue is generally relatively frequently researched in the literature, but the paper under review nevertheless brings some new insights. However, it could be improved by more clearly stating how this study adds value beyond existing empirical tests.
Theoretical framework: The theoretical part is processed at a good level, and the authors demonstrate good orientation in theoretical concepts as well as empirical studies. In this part, I recommend (1) a more synthetic and critical approach and (2) an analytical comparison of both key theoretical concepts – trade-off as well as pecking order (eg, to explain when and why one theory might dominate in emerging markets, irrespective of particular macroeconomic conditions).
Methodology used: The methods applied within the paper (fixed and random effects panel models) are appropriate. To improve the methodological part, I suggest an explanation for the selection of only four countries and clarification of the representativeness of the research sample.
Analysis and interpretation: The results and empirical findings are discussed with adequate reference to institutional differences. In order to strengthen the reliability of the paper´s findings, author(s) should include robustness checks or some alternative specifications.
Practical implications: In the conclusion part the author(s) state that companies in different countries adjust their capital structure in different ways. In this part, I suggest an extension of the implications for policymakers and managers.
Structure and clarity: In general, the paper is well-written and structured. However, it requires revision of grammar and syntax as well as modification of table formatting for a higher level of clarity.
The paper shows valuable empirical insights into capital structure dynamics in Latin American economies. With improved clarity, tighter theoretical synthesis, and additional robustness testing, it has strong potential for publication.
Author Response
I sincerely appreciate your comment. Below, I provide a specific response, describing the action taken in the manuscript or, when applicable, the rationale behind the decision made.
Topicality and relevance: The paper deals with the topic of capital structure in companies within emerging economies (Latin America). This issue is generally relatively frequently researched in the literature, but the paper under review nevertheless brings some new insights. However, it could be improved by more clearly stating how this study adds value beyond existing empirical tests.
Response: We have revised and expanded the concluding paragraph of the introduction to more clearly articulate the study’s added value. Specifically, we emphasize that this research goes beyond single-country or short-term empirical analyses by offering a multi-country comparison of Latin American firms over a recent ten-year period (2013–2023). This allows for the identification of regional patterns and structural differences across emerging markets. Additionally, we highlight the study’s contribution to the underexplored area of theoretical complementarity between trade-off and pecking order theories. Finally, we introduce a broader fiscal and social perspective, linking capital structure decisions to economic development and equity. We believe these revisions reinforce the study’s originality and contribution beyond prior empirical research.
Theoretical framework: The theoretical part is processed at a good level, and the authors demonstrate good orientation in theoretical concepts as well as empirical studies. In this part, I recommend (1) a more synthetic and critical approach and (2) an analytical comparison of both key theoretical concepts – trade-off as well as pecking order (eg, to explain when and why one theory might dominate in emerging markets, irrespective of particular macroeconomic conditions).
Response: We revised and rewrote the final section of the theoretical framework to adopt a more concise approach, eliminate redundancies, and highlight the key theoretical contributions more clearly. We also added a more explicit analytical comparison between the trade-off and pecking order theories, discussing their conceptual foundations and explaining their respective relevance in emerging markets such as Latin America. This adjustment enhances the understanding of capital structure decisions in contexts with greater informational and structural constraints.
Methodology used: The methods applied within the paper (fixed and random effects panel models) are appropriate. To improve the methodological part, I suggest an explanation for the selection of only four countries and clarification of the representativeness of the research sample.
Response: We have added a clearer explanation of the country selection and sample representativeness. Specifically, we justified the inclusion of the four countries based on their participation in the Pacific Alliance, a regional integration initiative that facilitates economic and financial cooperation. We also detailed the data filtering and sample construction process, focusing on non-financial publicly listed companies with complete financial information. These clarifications are now reflected in the methodology section and Annex 1.
Analysis and interpretation: The results and empirical findings are discussed with adequate reference to institutional differences. In order to strengthen the reliability of the paper´s findings, author(s) should include robustness checks or some alternative specifications.
Response: The annexes include a section with the results of the Hausman test for all the estimated models, which helps validate the selection between fixed and random effects. This test provides an initial robustness check by confirming the consistency of the chosen estimator.
Practical implications: In the conclusion part the author(s) state that companies in different countries adjust their capital structure in different ways. In this part, I suggest an extension of the implications for policymakers and managers.
Response: We have revised the conclusion to explicitly include practical implications for both policymakers and corporate decision-makers. The text now highlights the importance of designing financial and regulatory strategies tailored to each country's institutional and economic context.
Reviewer 3 Report
Comments and Suggestions for AuthorsThe manuscript investigates the applicability of the trade‐off versus pecking‐order theories in the capital‐structure decisions of non-financial firms from four Latin American countries (2013–2023).
The purpose of this study was to analyze which of the two dominant capital‐structure theories—the pecking-order theory or the trade-off theory—best describes the financing decisions made by Latin American non-financial firms listed on stock exchanges.
The study makes an empirical contribution to the region but also raises several points that need clarification and improvement regarding its theoretical grounding, methodology, and presentation of results.
Although classic references such as Modigliani & Miller (1958, 1963) provide a solid theoretical framework, it would be useful to complement them with studies published in the last five years in order to reflect recent conceptual and empirical developments.
The novelty of the study and its contribution to the specialized literature are not clearly delineated. I recommend you explicitly state what this research adds beyond previous work and how it originally enriches our understanding of capital‐structure decisions in emerging economies.
The methodology section needs more detailed explanations of the data processing, so that the reader can clearly follow the flow from extracting Bloomberg indicators to constructing the panel dataset.
Likewise, the results section requires additional commentary to contextualize the findings: explain how to interpret the key coefficients and relate your conclusions to the estimated values.
In the Conclusions section, it would be helpful to add dedicated subsections on:
- Study limitations (e.g., potential measurement errors in Bloomberg data, endogeneity, omitted variables);
- Practical recommendations for managers and policymakers in emerging economies;
- Directions for future research, given that capital structure remains an active and evolving topic in the literature.
Author Response
I sincerely appreciate your comment. Below, I provide a specific response, describing the action taken in the manuscript or, when applicable, the rationale behind the decision made.
Comment 1: Although classic references such as Modigliani & Miller (1958, 1963) provide a solid theoretical framework, it would be useful to complement them with studies published in the last five years in order to reflect recent conceptual and empirical developments.
Response: We have incorporated recent studies (published within the last five years) that revisit and test traditional capital structure theories in emerging market contexts. These contributions complement the classical references with up-to-date empirical evidence and introduce institutional factors, financial frictions, and context-specific dynamics from developing economies.
Comment 2: The novelty of the study and its contribution to the specialized literature are not clearly delineated. I recommend you explicitly state what this research adds beyond previous work and how it originally enriches our understanding of capital‐structure decisions in emerging economies.
Response: We added a paragraph at the end of the introduction that explicitly highlights the study's originality. In particular, the research provides a recent and comparative perspective on capital structure decisions in Latin American emerging markets, an area still underrepresented in the literature. Additionally, we revised the first paragraph of the conclusions to reinforce this contribution by emphasizing the integration of empirical evidence with theoretical and policy-oriented insights, which enriches the understanding of financing behavior in heterogeneous institutional contexts.
Comment 3: The methodology section needs more detailed explanations of the data processing, so that the reader can clearly follow the flow from extracting Bloomberg indicators to constructing the panel dataset.
Response: The methodology section has been expanded to provide a clearer description of the data processing flow—from the extraction of financial indicators from Bloomberg, through the sample refinement, to the construction of the balanced panel data. This information is presented in the main text and further detailed in Annex 1.
Comment 4: Likewise, the results section requires additional commentary to contextualize the findings: explain how to interpret the key coefficients and relate your conclusions to the estimated values.
Response: In the results section, we included an interpretative paragraph that contextualizes the key coefficient of the optimal leverage model. Specifically, it explains that firms adjust, on average, 5.80% of the gap between their current and target debt levels per period, which empirically supports the hypothesis proposed by Shyam-Sunder and Myers (1994).
Comment 5: In the Conclusions section, it would be helpful to add dedicated subsections on:
1. Study limitations (e.g., potential measurement errors in Bloomberg data, endogeneity, omitted variables);
Response: The results section includes a reflection on the study's limitations. Specifically, it acknowledges potential limitations related to sample size and reports on the use of robust standard errors to address potential heteroskedasticity issues.
2. Practical recommendations for managers and policymakers in emerging economies;
Response: We have revised the second paragraph of the conclusion to include practical recommendations for both corporate executives and policymakers. The text highlights the need for adaptive corporate financing strategies and the development of appropriate regulatory frameworks that consider the structural and financial constraints of emerging economies.
3. Directions for future research, given that capital structure remains an active and evolving topic in the literature.
Response: We have revised the third paragraph of the conclusion to include potential future research avenues. These include approaches such as the use of panel data methodologies, corporate governance analysis, and emerging factors such as ESG criteria, as well as cross-regional comparative studies, recognizing that capital structure remains a dynamic field in the financial literature.
Round 2
Reviewer 3 Report
Comments and Suggestions for AuthorsThe manuscript has been significantly improved following the comments received. The changes made are relevant, well-justified, and contribute to the clarity and scientific value of the study. The revised version is clearly enhanced and does not require any further comments from my side.
