Leonardo Cunha Da Silva
Master's – Influence of financial flexibility on the financing and investment decisions of Brazilian listed companies
Advisor: Profa. Dra. Tatiana Albanez
Comission: Profs. Drs. Lucas A. B. de Campos Barros, Wilson Toshiro Nakamura and Maurício Ribeiro do Valle
Class: 217, FEA-5
Under the financial flexibility hypothesis, firms would preserve greater positions in liquid assets and borrowing capacity to reduce potential constraints on accessing external resources, avoid the risk of underinvestment, and absorb adverse exogenous shocks to their financial decisions. However, such a conjecture, which has received little attention in the corporate finance literature, would be able to respond to important theoretical-empirical gaps, especially the main theories of capital structure. In view of this, the objective of this study was to evaluate the influence of the maintenance of financial flexibility on the financing and investment of Brazilian publicly traded companies from 2008 to 2017, as well as to analyze the repercussion of this policy on companies considered constrained and financially flexible. For that, the models of financing, investment and impact assessment were developed. It was used estimation methods that could correct potential problems due to endogeneity among the variables, such as: GMM, difference-in-difference and propensity score matching. In the first model, was investigated the additional effect on the levels of financial flexibility on the levels of leverage of firms classified as constrained and unconstrained under five criteria: KZ, WW, SA, total assets and dividend payout index measures. As a main finding, through dynamic panel data regression (GMM), it was verified that increases in excess cash and in financing capacity lead to more accentuated increases in the book leverage of constrained firms under different criteria of financial constraint. In the second model, through investment equations (GMM) of Tobin's q and sales-accelerator, the sensitivity of the investment to cash flow in flexible and inflexible firms was investigated under three criteria: excess cash, financing capacity and the intersection of both. In this evaluation, in the Q model of investment, the most important result is that financially flexible companies, when obtaining debt capacity, would reduce the dependency of cash flow generation to invest, compared to inflexible firms. Finally, through quasi-experimental methods (differences-in-differences and matching), it was examined how the withdrawal of investment grade of the Brazilian sovereign credit rating in 2015 (negative exogenous event) impacted financing decisions and investment in flexible and non-flexible firms (with and without investment grade credit rating, respectively). The matching method provided evidence that, above all, the market leverage of the flexible firms are less impacted after the occurrence of the adverse shock when compared to the inflexible firms. In contrast, this event did not cause statistically significant differences in the investment levels of the groups in both methods. These results contribute to the understanding of: the persistent under-leverage behavior of the constrained and unconstrained firms; declared financial managers' desire for financial freedom for future investments; proactive behavior in response to expected and unexpected events. In summary, these findings indicate that the maintenance of financial flexibility exerts a relevant influence on the main financial decisions of Brazilian public companies and in unusual market conditions.
*Abstract provided by the author