Capital structure and dividends have been frequently studied in corporate finance. In 2002, Fama and French simultaneously analyzed these two subjects in the context of tradeoff and pecking order theories. The simultaneous analysis means acknowledging that dividend influences capital structure and vice versa, leading to an endogeneity problem. Extending and adapting Fama and French's study to the Brazilian environment and including yet another dependent variable, i.e. interest on equity, this article aims to analyze the relationship among capital structure, dividends and interest on equity in the context of Brazilian companies. The analysis comprises the period from 1995 to 2004. Results corroborate many of the predictions of tradeoff and pecking order theories, despite the fact that dividend payout in Brazil is low when compared to the United States. Profitability was the most significant variable in explaining dividend and leverage.
Capital structure; Dividends; Interest on equity
