Abstract
Purpose – This 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.
Highlights
According to Montoya, Pasqual, Lopes, and Guilhoto (2013), it has been verified that the energy sector is one of the most relevant in the country, since it stimulates in a comprehensive and uniform way the economic growth of the various Brazilian sectors
According to Aivazian, Ge, and Qiu (2005), in incomplete markets, agency problems occur in the interactions between shareholders, creditors, and managers, which lead to situations of overinvestment or underinvestment
This study aims to determine how companies in the electric energy sector choose their level of financial leverage and debt maturity in order to alleviate the problem of underinvestment
Summary
According to Montoya, Pasqual, Lopes, and Guilhoto (2013), it has been verified that the energy sector is one of the most relevant in the country, since it stimulates in a comprehensive and uniform way the economic growth of the various Brazilian sectors. Such agency problems are more pronounced in emerging markets, such as Brazil, making it impossible to say whether investments are exclusively or completely carried out due to economic fundamentals In this context, it can be affirmed that studying the relationship between the level of debt and investment and, the possible underinvestment in Brazilian companies of the electric energy segment, is of vital importance to the economic growth of the country. Milstein and Tishler (2012) argue that underinvestment in electricity markets is a major concern for leaders In this context, analyses are warranted that consider the most relevant characteristics of the Brazilian scenario to understand how companies in the electricity sector control, or at least ease, the negative impact brought about by financial leverage on corporate investments. This study aims to determine how companies in the electric energy sector choose their level of financial leverage and debt maturity in order to alleviate the problem of underinvestment
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