Financial Decisions, Ownership Structure and Growth Opportunities: An Analysis of Brazilian Firms

Abstract

This paper analyzes the influence of financial decisions and ownership structure on firm value in function of whether companies have profitable growth opportunities for a sample of 182 listed Brazilian firms during the period 1995-2004. Concerning financial leverage, the results offer support for both the underinvestment and overinvestment hypotheses. Dividends have a dual role, since they both signal growth opportunities and reduce managerial discretion. The results also show that ownership structure has an asymmetric impact. On the one hand, ownership concentration improves the value of all the firms, irrespective of the growth opportunities. But on the other, for firms with growth opportunities there is a risk that the large shareholders will expropriate wealth at the expense of the minority shareholders, as shown by the non-linear relation uncovered.

Keywords: Leverage, Dividends, Ownership Structure, Growth Opportunities, Agency Theory

JEL Classification: G31, G32, G35