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In order to ensure profitability and continuity in the long term, maximizing the bottom line for investors and shareholders is one of the primary objectives of any company (HENDRIKSEN; VAN BREDA, 2009). Yadav (2014) stresses that finances are the lifeblood of business-type organizations: in order to create wealth and shareholder value to the utmost of their potential, financial management activities are necessary for continued business operations.
Two theories stand out in the ongoing debate on capital structures in companies and debt levels: Pecking Order and Trade-off theory. From this, the issue central to this study emerges: What variables serve to explain the capital structure of Brazilian companies? In order to achieve the general objective of the identifying determining variables that explain the capital structure of Brazilian companies listed on the BM&FBovespa via a comparative focus on Pecking Order and Trade-off theory.
Beginning in the 1950s, financial economists have debated distinct theories to explain company capital structures. Despite the vast quantity of publications on the topic, a consensus as to an ideal financial structure does not exist, nor does one regarding the factors that influence the same. Two theories have gained prominence in the discussion on company capital structure: Pecking Order and Trade-off (DROBETZ; et al., 2013; LIU, 2014; ACEDO-RAMÍREZ E RUIZ-CABESTRE, 2014).
This study examine the relationship between independent variable “Leverage” against the following dependent variables: (i) Tangibility; (ii) Profitability; (iii) Current Liquidity; (iv) Enterprise size or Growth opportunities and (v) Firm size. Econometric panel estimation modeling was applied for data treatment and analysis, initially by way of Hausman and Breusch-Pagan tests for the adequacy of the fixed effects model. Subsequently, Granger Causality testing was employed (192 companies/2013-9)
The causal relationships between the variables comprising the model were analyzed using Granger Causality testing, which produced the following findings:
a) PROF does not Granger-cause LEV and LEV does not Granger-cause PROF;
b) TANG does not Granger-cause LEV;
c) LEV does not Granger-cause NDT;
d) LIQC does not Granger-cause LEV and LEV does not Granger-cause LIQC;
e) LEV does not Granger-cause ESG;
f) LEV does not Granger-cause SIZ.
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