SELIC Rate Effects on Investments by Publicly-Traded Companies: Evidence from Brazil

Evidence from Brazil

Abstract

This study sought to verify the impact of the Special Settlement and Custody System (Sistema Especial de Liquidação e Custódia – SELIC) rate on investments made by Brazilian publicly traded companies. The research is based on the assumptions of the Theory of Interest, which postulates that the increase in the monetary interest rate discourages companies from making investments, resulting in a lower generation of wealth and, consequently, retardation in the economic growth of the country. To achieve this objective, data were collected from databases and, with this information, a regression with panel data was performed for a sample of 325 companies listed in Brazil, Bolsa, Balcão [B]3, the São Paulo stock exchange, in the period from 2013 to 2022, totaling 6,694 observations. The results indicated that the SELIC rate is negatively related to investments made by companies in the period, considering that the basic interest rate takes 6 to 9 months to have effects on aggregate demand. Thus, it appears that the higher the percentage of the interest rate is, the lower are the investments the organizations have undertaken, which is found to meet what the Theory of Interest exposes. In addition, during economic instability, companies tended to reduce capital investments. In theoretical terms, the main implications of the research are to expand discussions through the evidence that traditional economic currents are effective in explaining the effects of the basic interest rate on corporate investments and aggregate consumption, including microeconomic groups, such as the capital market, provided that the intrinsic characteristics of the country's economy are considered in empirical explorations. Therefore, the study provides reflections on the behavior of companies in uncertain economic scenarios and the impact of these aspects on corporate investments, which prevalently influence shareholder investment decisions.