Decisions on Investment and Profitability: An Empirical Study Using Generalized Linear Mixed Models in Non-Financial Brazilian Companies

• In Event: Financial Accounting and Reporting II

Abstract

In this study we used a wide class of statistical models (generalized linear mixed models – GLMM) to examine empirically the relation between past investment and profitability (measured by ROA and Tobin´s q), considering five scenarios with different periods of investment. These models enabled to consider a structure of correlation for the profitability observed over time and to use a distribution of different probability for ROA and Tobin´s q coefficient. Data from the financial statements of non-financial companies listed on Brazilian Stock Exchange were collected (2001-2011), resulting in the unbalanced sample of 1,484 company-year observations. Regarding ROA, the results showed a positive relation between contemporary investment and profitability, and a negative relation between past investment and profitability. The relation of past investment with the profitability (using Tobin´s q) was positive. These relations were slightly weaken, which suggests that investments have their profitability reduced over time.

Authors

• Aldy Fernandes da Silva, Fundação Escola de Comércio Álvares Penteado

• Afrânio Márcio Corrêa Vieira, University of Brasília

• Augusto Coppi Navarro, Fundação Escola de Comércio Álvares Penteado

• Cláudio Parisi, Fundação Escola de Comércio Álvares Penteado