The effects of capital structure and investment decisions on corporate financial performance

Abstract

Empirical studies in the area of corporate finance have analyzed investment and debt decisions and the effects of such decisions on segregated financial performance, the results of which reveal contradictory effects of the variables used in each of these decisions. From this, this study aims to analyze in aggregate the determinants of investment and debt decisions of Brazilian companies and the effects on financial performance from 1999 to 2018, based on the combination of two private bases. These bases were combined, totaling an average of 1.340 companies in each of the years for a total of 20 years, making it possible to intersect information from 737 companies over the period. The analysis took place through the panel data regression model, through three empirical models, one for each dimension (investment, debt and financial performance). The results of this research show that there is interdependence between decisions, where revenue variation and Return of lnvestment may have different impacts on investment and debt decisions. ln addition, variables on investment and debt decisions exert significant mutual influence, in which asset growth is related to debt reduction, signaling a greater preference for equity. Given this, this study demonstrates the need for further discussion of the two main financial decisions in an integrated manner, including evaluating the performance of companies.