Trade-off theory and pecking order theory suggest a negative relationship between leverage and business risk. However, supported by the literature [Bennet and Donelly (1993), Huang and Song (2003), Booth et al. (2001) and Deemosak et al. (2004)] the presented results show a strong and significant positive relationship with each other for all leverage measures. This relationship can be justified by suggesting that risky firms will tend to use more debt because they cannot transfer wealth from bondholders to shareholders (Bennet and Donelly, 1993) or that firms with risky investments will use higher levels of debt (Huang and Song, 2003 ). Furthermore, a firm can increase its levels of risky investment if the costs and risk of entering into a liquidation process are low (Deemosak et al., 2004). As the earnings volatility of Latin American businesses increases, they tend to rely on debt for their future investments. Focusing on models that include macroeconomic indicators (market columns such as II) one can see that inflation has a strong and significant positive relationship with financial leverage. The results, however, contradict the literature [Booth et al. (2001), Barbosa and Moraes (2003) and Jorgensen and Terra (2003)]. Latin American countries experienced high inflation rates in the late 1990s; however, since 1995, inflation has been decreasing. Despite the latter, the internal and external financial crisis led inflation to rise again in the late 1990s and early 2000s. The findings suggest that Latin American firms increase their debt levels when l Inflation increases because in inflationary periods nominal liabilities, such as debt, depreciate in value, thus becoming more attractive to the borrower. The ratio of stock market capitalization to GDP has a negative relationship with all dependent variables, as the capital market becomes a viable alternative; companies will tend to use less debt. On the other hand, the ratio of bank deposits to GDP shows a positive relationship with financial leverage: as the banking sector grows, firms will be more incentivized to use more debt. For both variables, the results agree with Booth et al. (2001) and with Agarwal and Mohatadi (2004). Booth et al. (2001) argue that higher economic growth tends to increase the debt-to-GDP ratio, however, the results show that in Latin American countries economic growth is negatively related to financial leverage (with the exception of the long-term debt-to-GDP ratio which indicates that firms will choose low levels of debt during expansion). in the economic cycle).