Do Leverage, Dividend Payout, and Ownership Concentration Influence Firms' Value Creation? An Analysis of Brazilian Firms

Abstract

This study uses a sample of 213 Brazilian firms listed between 1995 and 2004 to examine the effect of the presence or absence of growth opportunities on the subsequent effect of leverage, dividend payout, and ownership concentration on firm value. First, we find that leverage plays a dual role: whereas it negatively affects the value of firms with growth opportunities (i.e., underinvestment theory), it positively affects the value of firms without growth opportunities (i.e., overinvestment theory). Second, we find that dividends play a disciplinary role in firms with fewer growth opportunities by reducing free cash flow under managerial control. Finally, the results show that ownership structure has a nonlinear effect-that is, ownership concentration initially improves the value of most firms. However, after a certain threshold, in firms with growth opportunities, the risk increases that large shareholders expropriate wealth at the expense of minority shareholders.

The Influence of Ownership Concentration on Firm Resource Allocations to Employee Relations, External Social Actions, and Environmental Action

“…Brazilian firms have, on average, 7.65% of annual net sales directed to social action (CSR_I). Our findings show that, in fact, Brazilian firms have high ownership concentration (OwnC), as previous works have documented (La Porta et al, 1998;López-Iturriaga & Crisóstomo, 2010). The average ownership concentration of voting shares is around 60.36% in the hands of the main shareholder (OwnC1) and reaches 79.66% in the hands of the three main voting shareholders (OwnC3).…”

Financial Constraints for Innovation in Brazil

“…Despite these advances, Brazil still presents characteristics that favor the existence of financial constraints. Brazilian capital markets are less developed in comparison with those of more advanced economies (Lopes, 2006;Studart) and protections for minority shareholders and creditors are weak, probably a consequence of high ownership concentration (La Porta et al, 1998;Lopes;López Iturriaga, and Crisóstomo, 2010). Shleifer and Vishny (1997) have shown that ownership concentration may be a result of poor investor protection.…”

Gerenciamento De Resultados E Estrutura De Propriedade: Evidências No Brasil

“…Por outro lado, considerando as características das firmas brasileiras -alta concentração de votos em poder de um único acionista; identidade do acionista controlador; emissão de ações sem direito a voto (preferenciais); estruturas indiretas de controle; dentre outras características (SILVA; LEAL, 2006;ALDRIGHI;MAZZER NETO, 2007;FAMÁ, 2008;VERNE;SANTOS;POSTALI, 2009;ITURRIAGA;CRISÓSTOMO, 2010) -que ensejam em uma força do grupo de controle, o que pode resultar em um maior nível de gerenciamento de resultados, pois ao possuir o controle efetivo da empresa os acionistas controladores acabariam por possuir também a gestão, e tenderiam a usá-la para alcançar seus objetivos pessoais (LOPES 2001;COELHO, 2007).…”