Econometric Model Based on the Application of the Weighted Average Cost of Capital for MSMEs in the Metal-Mechanic Sector in Colombia
Abstract
The metal-mechanic sector is a key component in the Colombian economic dynamics. It generates approximately 15% of the jobs in the country; it stimulates the food, oil, and chemical production sectors, among others; and it also contributes about 9% to the Gross Domestic Product (GDP). This sector is composed of Micro, Small, and Medium-sized Enterprises (MSMEs). The objective of this study was to propose an econometric model based on the application of the Weighted Average Cost of Capital (WACC) to support the decision-making of MSMEs in the metal-mechanic sector in the Metropolitan Area of Bucaramanga (MAB), Colombia. Furthermore, different scenarios with several interest rates of the loans granted to them were evaluated. This study implemented descriptive multivariate multiple regression analysis. Thus, considering the econometric model proposed here and the analysis of the different scenarios, the results show that the WACC of the microenterprises in this sector is higher because they do not use financial leverage for their assets. Therefore, they do not take advantage of the benefits offered by the tax shield for the reduction of said cost. On the other hand, it was found that small companies have a lower WACC than their medium-sized counterparts, but this difference is not statistically significant. It is concluded that financing assets with debt represents a direct advantage when it comes to paying taxes, which translates into higher profits for shareholders if the debt policy is consistent with the performance of the company. Likewise, the results obtained here constitute a reference point for companies to carry out strategic analyses to establish to what extent they are obtaining value or not in the face of sectoral dynamics.
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