Moderating effect of financial slack on the relationship between conservative leverage and economic performance of Brazilian companies

Abstract

The study aims to analyze the moderating effect of financial slack on the relationship between conservative leverage and the economic performance of Brazilian companies. The sample consisted of 160 publicly traded companies and 871 privately held companies. An 8-year period (2012-2019) was analyzed, totaling 5.889 observations. The data was collected from the Refinitiv Eikon® database. For data analysis, descriptive statistics and multiple linear regression were employed using the STATA® software. It was found that for companies in general, having zero or almost zero leverage reduces economic performance. Specifically analyzing publicly traded and privately held companies, having almost zero leverage increases and decreases performance, respectively. Regarding financial slack, the results indicate that regardless of whether the company is publicly traded or privately held, financial slack increases performance, specifically return on assets. In terms of moderation, a negative effect of financial slack on the relationship between conservative leverage and performance was identified.