Leverage, entrenched managers, and moderating effect of main shareholder’s influence
DOI:
https://doi.org/10.1590/1808-057x20241979.ptPalabras clave:
leverage, Agency Theory, Trade-Off Theory, managerial entrenchmentResumen
This study associated the leverage of Brazilian listed companies with their managers’ search for protection against the risk of main shareholder’s intervention. Although the literature has pointed out that managers might increase leverage in order to protect themselves against takeovers, it had not yet investigated the use of debt as a defense against the risk of intervention by the company’s main shareholder. This research addresses the main issue of corporate governance, i.e. entrenchment resulting from manager’s strengthening and excessive protection. The importance of considering the agency relationship when explaining the capital structure observed in Brazilian companies is reinforced, especially when considering the existence of optimal leverage that might maximize value for shareholders. Panel regressions tested the association of leverage with managerial strengthening and the risk of main shareholder’s intervention for a sample of Brazilian listed companies. Specifically, an interaction model was used in which the observed leverage is a function of strengthened managers, those whose compensation is always higher than expected, given company characteristics and performance, who sought protection against large shareholders who have great influence on the decisions of their companies. The results suggest that, although they have a potential interest in reducing debt discipline, entrenched managers increase debt level in the presence of a large influential shareholder, demonstrating commitment to shareholders. These results highlight the importance of Agency Theory in explaining the capital structure of Brazilian companies, and highlight similarities in the approach to leverage by managers in markets with different characteristics, such as Brazil and the United States of America (USA).
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Derechos de autor 2025 Bruno José Canassa, Lucas Allan Diniz Schwarz, Maurício Ribeiro do Valle
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