Capital Structure and Innovation Strategy: A Study in the Brazilian Context

18 Pages Posted: 4 Oct 2007

See all articles by Paulo Sérgio Martins Marques

Paulo Sérgio Martins Marques

Mackenzie Presbyterian University

Leonardo Cruz Basso

Mackenzie Presbyterian University - Business Administration

Eduardo Kayo

Mackenzie Presbiterian University

Date Written: October 3, 2007

Abstract

The modern theory of the capital structure has been the subject of a great amount of studies, since the publication of the famous article by Modigliani and Miller (1958) where they defended that, under certain circumstances, the leverage (relationship between equity capital and third party capital) used by companies would not have impact on its value. Throughout time several theories had been developed to explain how companies define their level of indebtedness; one of them attempts to explain how specific aspects of each organization influence its capital structure. This paper, based on research prepared and published by Jonathan P. O'Brien in the United States of America, evaluates for the Brazilian context the existence of empirical evidences of the occurrence of one of these particular aspects, innovation. The adoption of a competitive strategy based on innovation influences the financing structure of organizations. Innovative firms use, predominantly, equity capital and are forced to keep financial slack, since these firms are riskier. Of the three hypotheses proposed in this paper, two had not been corroborated by the statistical tests, while the other presented the results foreseen by the theory and compatible with other empirical studies on this subject.

Keywords: Innovation, indebtedness, competitive strategy based on innovation, financial slack

JEL Classification: G21, G12

Suggested Citation

Marques, Paulo Sérgio Martins and Cruz Basso, Leonardo and Kayo, Eduardo Kazuo, Capital Structure and Innovation Strategy: A Study in the Brazilian Context (October 3, 2007). Available at SSRN: https://ssrn.com/abstract=1019075 or http://dx.doi.org/10.2139/ssrn.1019075

Paulo Sérgio Martins Marques

Mackenzie Presbyterian University ( email )

Rua da Consolação 920
São Paulo, 010302907
Brazil

Leonardo Cruz Basso (Contact Author)

Mackenzie Presbyterian University - Business Administration ( email )

Rua da Consolacao, 896 7 - andar sala 73
01302-907 Sao Paulo
Brazil
+55 11 32368597 (Phone)
+55 11 32368600 (Fax)

Eduardo Kazuo Kayo

Mackenzie Presbiterian University ( email )

São Paulo
Brazil
3236-8597 (Phone)
3236-8600 (Fax)

HOME PAGE: www.mackenzie.com.br

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
252
Abstract Views
1,651
Rank
220,759
PlumX Metrics