Title: The effects of capital structure on profitability in the Brazilian electricity sector

Authors: Rômulo Muzzi Câmara; Jérôme Caby; Pedro Ivo Camacho Alves Salvador

Addresses: Departamento de Captação de Recursos e Relações com Investidores, Rua Matias Cardoso no 169, 9º Andar, Santo Agostinho, Belo Horizonte/MG, 30.170-050, Brazil ' Sorbonne Business School, IAE Paris – Université Paris Panthéon-Sorbonne, 8 bis rue la Croix Jarry, 75013 Paris, France ' STA – Departamento de Ciências Atuariais e Finanças, Universidade Federal Fluminense, Rua Mario Santos Bragas, no. 30, 7º Andar, Centro Niterói, RJ, 24020-140, Brazil

Abstract: The Brazilian electricity sector requires capital-intensive companies. To assess how capital structure can affect the performance of these companies is essential to help shareholders, managers, and regulators understand the sector. This research seeks to identify the effects of capital structure on the profitability of Brazilian electricity companies. Thirty-six listed companies were selected over a 20-year period from 2000 to 2019. For performance measurement purposes, three dependent variables are chosen: return on equity (ROE), return on assets (ROA) and Tobin's Q. The regression models used are fixed effects and random effects. The results indicate a negative influence of debt on ROA and ROE and a positive impact of equity on ROA and ROE. The effects of debt and equity on Tobin's Q are not statistically significant, suggesting an optimal financial equilibrium of Brazilian electricity companies, guided by trade-off theory intuition.

Keywords: Brazil; capital structure; profitability; electricity sector.

DOI: 10.1504/IJGFI.2022.123899

International Journal of Governance and Financial Intermediation, 2022 Vol.1 No.3, pp.203 - 218

Received: 22 Nov 2021
Accepted: 07 Feb 2022
Published online: 04 Jul 2022 *

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