The international zero-leverage phenomenon

Wolfgang Bessler, Wolfgang Drobetz, Rebekka Haller and Iwan Meier

Journal of Corporate Finance, 2013, vol. 23, issue C, 196-221

Abstract: We analyze the zero-leverage phenomenon around the world. Countries with a common law system, high creditor protection, and a dividend imputation or dividend relief tax system exhibit the highest percentage of zero-leverage firms. The increasing prevalence of zero-leverage firms in all sample countries is related to market-wide forces during our sample period, such as IPO waves, shifts in industry composition, increasing asset volatility, and decreasing corporate tax rates. Firm-level comparisons reveal that only a small number of firms deliberately maintain zero-leverage. Most zero-leverage firms are constrained by their debt capacity. Analyzing the time-series dynamics of leverage and investment behavior, we further show that firms which pursue a zero-leverage policy only for a short period of time seek financial flexibility.

Keywords: Capital structure; Debt conservatism; Financial constraints; Financial flexibility (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (48)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:23:y:2013:i:c:p:196-221

DOI: 10.1016/j.jcorpfin.2013.08.004

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