 The financial conservatism of firms in emerging economiesMichael Machokoto, Chimwemwe Chipeta, Nadeem Aftab and Geofry Areneke Research in International Business and Finance, 2021, vol. 58, issue C Abstract: Using a large sample of emerging market firms over the period 1980–2015, we document a high prevalence and persistence of financial conservatism. Specifically, 31% of the African firms have ultra-low leverage (less than 5%), with 42% and 11% having non-positive net-debt (total debt less cash) and no debt (zero-levered), respectively. In further analyses, we find that macroeconomic conditions have a muted effect on financial conservatism. Our results suggest that financial conservatism in emerging markets is due to two main factors; (1) credit constraints, and (2) the desire to attain or enhance financial flexibility. The former calls for pro-market policies that improve access to external finance. At the same time, the latter, which results in the accumulation of cash reserves at the expense of current investments, is a strategic choice aimed at preserving or enhancing financial flexibility. Our results are robust to using alternative sub-sampling, model specifications, definitions of variables and estimation techniques. Keywords: Capital structure; Financial conservatism; Low-leverage; Zero-leverage; Emerging markets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921001045 DOI: 10.1016/j.ribaf.2021.101483 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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