Profitability and conservative leverage of Brazilian companies¹

Abstract

Purpose:

The study aims to analyze the relationship between profitability and conservative leverage of Brazilian companies.

Originality/value:

The study contributes to the literature by investigating profitability as a fundamental determinant of the conservative leverage of Brazilian companies, making it possible to understand whether this influence is based on a perspective of flexibility or financial constraint.

Design/methodology/approach:

The research is characterized as descriptive, archival, and quantitative. The study sample consisted of 271 public companies and 8,823 private companies. Data were collected in the Refinitiv Eikon database between 2012 and 2019 (eight years). For data analysis, the study used logistic regression in Stata software.

Findings:

The results indicate that, on average, 5.05% of public companies have zero leverage, and 29.08% of private companies have book leverage below 5%; in the context of public companies, the more profitable the company, the greater the probability of having almost zero leverage, corroborating the perspective of financial flexibility. Less profitable private companies are likelier to have zero leverage, which is consistent with the view of financial constraint.

Keywords:
profitability; conservative leverage; zero leverage; almost zero leverage; Brazilian companies