Interest on equity and capital structure in the Brazilian context

Abstract

Purpose – The interest paid on own capital can benefit companies in the Brazilian capital market as it can be considered a business expense and is, therefore, deductible as a corporate tax. The purpose of this paper is to assess the impact of interest on equity (IOE) on capital structure decisions. Design/methodology/approach – The initial sample consisted of 524 publicly traded companies from different industries in the Brazilian capital market that were listed on Bovespa. Companies in the finance, insurance and funds industries were excluded from the sample due to the unique features of these financial intermediaries. Some companies in the initial sample were excluded due to a lack of published data, inactivity during the sample period, etc. Thus, the paper excluded those companies that did not have valid observations or failed to publish them. The final sample included 370 companies and covered the nine-year period from 1998 through 2006. Findings – To this end, the authors identified the main determinants of capital structure and analyzed, through panel data, the relationship of IOE in addition to other determinants of capital structure, such as size, profitability, investment opportunities, risk, sales growth, real interest rate and real exchange rate, in corporate debt. The novel contribution of this study is the inclusion and analysis of the IOE in studies on the determination of capital structure of Brazilian companies. A new capital structure scenario was created when Law No. 9.249/95 required changes in legislation, ceasing the restatement of balance sheets and allowing companies to compensate their stockholders through IOE. Before this change, companies could only benefit from the tax benefits of debt, using debt capital. Now, they can also benefit from the use of equity because, by requiting equity through the IOE, deductions of income tax and social contributions on net income are allowed by tax law because the IOE may be considered a financial expense. Originality/value : The authors were not able to find any other publication of a similar study in a review of the extant empirical literature.

Hubungan Current Ratio, Struktur Modal, dan Ukuran Perusahaan terhadap Kinerja Keuangan Perusahaan Pertambangan yang Terdaftar di BEI Periode 2014-2016

“…Struktur modal merupakan bauran pendanaan hutang jangka panjang dan ekuitas (Brealey et al, 2011:600). Struktur modal merupakan cara perusahaan untuk membentuk sisi kanan neraca yang terdiri atas modal dan hutang (Zani et al, 2013). Struktur modal terdiri atas pendanaan jangka pendek, pendanaan jangka panjang, dan ekuitas.…”

Capital structure management differences in Latin American and US firms after 2008 crisis

“…Most of the studies on capital structure were based on cross-section, which bounds results scope. Therefore, in this research, as well as other recent studies (Alves and Ferreira, 2011; Dang et al , 2014; Gómez et al , 2014; González and González, 2012; Martins and Terra, 2014; Zani et al , 2014; Rogers, Silva, Neder and Silva, 2013), panel data are used, seeking precisely to take into account the temporal behaviour of selected variables.…”

“…The performance is not restricted to originating country but extends to other realities. Thus, examinations of firms from developed or developing countries, in addition to the appreciation of companies belonging to an economic block, are of fundamental importance for understanding regional specificities (Zani et al , 2014; Awartani et al , 2015; Belkhir et al , 2016).…”

“…et al (2012),,,Bradley et al (1984),Barros et al (2013),Kayo and Kimura (2011),Terra (2007),Zani et al (2014),Thippayana (2014),Dang et al (2014),Yeh (2011) …”

A interdependência das decisões empresariais de investimento e endividamento na América Latina

“…Além disso, a relação inversa da rentabilidade verificada no primeiro ano do ROE sustenta a hipótese da Pecking Order, conforme Zani et al (2014).…”