Titulo: “Not all profits are created equal: New evidence on the profitability-leverage puzzle

Autores: Giorgo Sertsios (Universidad de los Andes) y Davidson Heath (University of Utah, Eccles school of business –finance department)


A robust finding in the capital structure literature is the inverse relation between profitability and leverage. We revisit this finding in light of a novel quasi-natural experiment through which some firms benefitted from enhanced trademark protection and exogenously increased profits. In contrast with earlier findings, we document that firms that increase their profits do not change their leverage ratios. In parallel, we show that suppliers of firms benefitting from enhanced trademark protection increase their profits but also reduce their leverage, consistent with earlier findings. Our results suggest that the reduction in leverage for suppliers is driven by an increase in risk (as their benefit depends on maintaining a business relation with the customer firm), which confounds with the increase in profits. Increases in underlying risk could thus explain the inverse relation between profitability and leverage found in the literature.

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Fecha y hora: 17 de Marzo de 2017 | 13:00 hrs
Lugar: Sala P307 Edificio Placa (Diagonal Paraguay # 257, Santiago, Chile)

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