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

20 Pages Posted: 3 Jun 2007 Last revised: 18 Aug 2010

See all articles by Félix J. López-Iturriaga

Félix J. López-Iturriaga

University of Valladolid - Department of Financial Economics and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Vicente Lima Crisóstomo

Universidade Federal do Ceará

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

Suggested Citation

Lopez-Iturriaga, Felix Javier and Crisóstomo, Vicente Lima, Financial Decisions, Ownership Structure and Growth Opportunities: An Analysis of Brazilian Firms. Emerging Markets Finance and Trade, Vol. 46, No. 3, 2010. Available at SSRN: https://ssrn.com/abstract=989926 or http://dx.doi.org/10.2139/ssrn.989926

Felix Javier Lopez-Iturriaga (Contact Author)

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

HOME PAGE: http://www2.eco.uva.es/flopez

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Vicente Lima Crisóstomo

Universidade Federal do Ceará ( email )

Fortaleza
Brazil

HOME PAGE: http://www.ufc.br

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