Performance of Debt Free Firms

Tarek Zaher

No 2009-WP-04, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: This paper compares the performance of portfolios of debt free firms to comparable portfolios of leveraged firms. The results of the study indicate that investments in portfolios of debt free firms tend to generate higher returns than investments in their peer portfolios of leveraged firms over long and short periods. The results have clear implications for investment decisions and investment performance. Investors tend to reward firms that resist the urge to borrow heavily and operate with debt free balance sheets and penalize firms that have high levels of debt. Moreover, during market downturns, debt free firms will not have the additional burden of debt and may be able to recover much faster than companies that carry a debt load over a long period of time, and therefore would outperform leveraged firms. This latter assertion may be retested after the latest international financial crises come to an end.

Keywords: Equity firms; capital structure; debt free firms; debt and stocks (search for similar items in EconPapers)
Pages: 19 pages
Date: 2009-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.indstate.edu/business/sites/business.in ... 2009-WP-04_Zaher.pdf Full text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.indstate.edu/business/sites/business.indstate.edu/files/Docs/2009-WP-04_Zaher.pdf [301 Moved Permanently]--> https://indianastate.edu/business/sites/business.indstate.edu/files/Docs/2009-WP-04_Zaher.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nfi:nfiwps:2009-wp-04

Access Statistics for this paper

More papers in NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ray Thomas ().