The effects of financial leverage and debt maturity on the investments of Brazilian electric sector companies

Aline Kuroda, Herick Fernando Moralles, Andrei Aparecido de Albuquerque


PurposeThis research aimed to verify how companies of the electric energy segment choose levels of financial leverage and debt maturity in order to alleviate the underinvestment problem.


Design/methodology/approach A multiple linear regression was carried out in a dynamic panel model to verify the relevance of these and other variables to the companies’ investments.


Findings The explanatory variable of investments carried out in the previous year was significant in the regressions, with a positive sign as expected. The financial leverage variable was significant and negative. The investments made by the companies are negatively related to indebtedness.


Originality/value It was identified that the maturity of debts of companies with low growth opportunities shows a negative relationship with the level of investment. Thus, in the electricity sector, reducing debt maturity can be considered as a substitute for reducing indebtedness in controlling underinvestment. Due to the relevance of this sector to the economy and the need for constant investments in it, understanding its financing dynamics provides an important contribution either to researchers or to managers of this industry.


Keywords –Investment, Financial Leverage, Debt Maturity, Underinvestment.


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