Pragmatic Economics and Sustainable Finance

Building solutions for a better world

Financial Management

In this page you can find all my research on Financial Management. Most of it is driven by my vast executive education experience.

Do ultimate owners follow the pecking order theory? – 2017

Previous studies that have tested the pecking order theory have been inconclusive. In this paper, we use unique survey results for private Brazilian firms in order to investigate firms’ choice of capital structure. We document that ultimate owners of privately owned firms follow the pecking order theory, even in presence of subsidized loans. We also show that whether a firm is debt constrained or unconstrained does not affect this finding.

Valuation and Sustainability – 2015

In this paper we present the Sustainability Delta model as an improvement over existing environmental, social and governance (ESG) methodologies used in firm valuation. Starting from the question of how banks should integrate sustainability criteria into their valuation methods, we find that ESG methodologies currently do not consider the potential to generate higher future revenues due to sustainable innovations, and also lack consideration of different scenarios such as higher standards in legislation or consumer demand. To address these shortcomings the Sustainability Delta model is developed. Simulation results on the sugar manufacturing industry in Brazil demonstrate that by using the Sustainability Delta we estimate an improved firm value of 1.24%. The Sustainability Delta would allow for a more accurate valuation of firms as well as for the more effective allocation of capital for investors, which should bring market pressure to improve sustainability practices and thus contribute to sustainable development

Firm, market and top management antecedents of speculation – 2015

In this paper, we explore the corporate governance traits of companies that posted hefty losses related to derivatives trading in the aftermath of the financial crisis. Using concepts from agency theory, cognitive decision making and institutional theory we theorize on potential facilitators of trading losses. Our sample is comprised of 346 companies from 10 international markets, of which 49 companies (and a subsample of 14 distressed companies) lost an aggregate of US$18.9 billion in derivatives. An event study shows that most companies experience substantial and long-term abnormal returns following these incidents. The results of a probit model indicate that the lack of a formal hedging policy, weak monitoring of the top management, overconfidence in technical trends, hubris and remuneration contribute to the mismanagement of hedging policies. Our study contributes to the existing financial risk management literature by identifying antecedents of derivatives losses.

O Modelo Dinâmico de Gestão Financeira – 2016

Textbook on Financial Management, written in Portuguese.