RELATIONSHIP ANALYSIS BETWEEN LEVERAGE AND PROFITABILITY OF BRAZILIAN BANKS LISTED IN THE SÃO PAULO STOCK EXCHANGE DURING THE PERIOD GOING FROM 2001 TO 2010

  • Marli Helena Colangelo Mantovani PUC-SP
  • José Odálio dos Santos PUC-SP
Keywords: Leverage, Profitability, Asset and Liability Management.

Abstract

The banking sector has prominent position in the economy, dealing with financial resources, providing innovative solutions and mainly by the constant pursuit of profitability increase. There are many reasons for the pursuit of greater profitability, such as the high competition in the sector and the managers’ pressures for higher returns through riskier operations. Although there are some academic studies on capital structure and profitability of banks, bank leverage and its relationship with profitability variables is still an open question. This paper explores the empirical relevance of the relationship between leverage and profitability of Brazilian banks. It is an empirical research, seeking to raise exploratory directions, pointing out correlation degrees, measured by estimation with panel data. The results of this work, based on a sample of Brazilian banks listed in São Paulo Stock Exchange, showed significant relationships between leverage and profitability indicators. Among the considerations suggested to justify the results obtained, it is possible to quote role of financial intermediation performed by banks, raising money from depositors and, after performing a careful analysis of credit risk, finance the companies’ and individuals’ short- and long-term needs, obtaining, in return, higher spreads to compensate the exposure to the risk of default. If this happens, the propensity is the obtainment of increasing taxable profits, increasing financial leverage capacity, the return on equity capital and the generation of a risk compromise index framed in the Basel standards. Thus, thanks to their large fundraising capacity, Brazilian financial institutions envision possibilities of earnings through credit and/or cash flow operations, managing their indebtedness to meet their resource application needs in assets, corroborating Paula et al.’s results (2001).

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Author Biographies

Marli Helena Colangelo Mantovani, PUC-SP
Mestre em Administração pela PUC-SP - São Paulo-SP, Brasil
José Odálio dos Santos, PUC-SP
Professor titular da FEA-USP e da PUC-SP - São Paulo-SP, Brasil Livre-Docente em Administração (Finanças) pela FEA-USP Professor de disciplinas de Finanças da Pós-graduação em Administração e Ciências Contábeis da PUC-SP E-mail:
Published
2016-02-27
How to Cite
Mantovani, M. H., & dos Santos, J. (2016). RELATIONSHIP ANALYSIS BETWEEN LEVERAGE AND PROFITABILITY OF BRAZILIAN BANKS LISTED IN THE SÃO PAULO STOCK EXCHANGE DURING THE PERIOD GOING FROM 2001 TO 2010. REGE Revista De Gestão, 22(4), 509-524. Retrieved from https://www.revistas.usp.br/rege/article/view/111503
Section
Finanças