The mystery of zero-leverage firms

Ilya A. Strebulaev and Baozhong Yang

Journal of Financial Economics, 2013, vol. 109, issue 1, 1-23

Abstract: We present the puzzling evidence that, from 1962 to 2009, an average 10.2% of large public nonfinancial US firms have zero debt and almost 22% have less than 5% book leverage ratio. Zero-leverage behavior is a persistent phenomenon. Dividend-paying zero-leverage firms pay substantially higher dividends, are more profitable, pay higher taxes, issue less equity, and have higher cash balances than control firms chosen by industry and size. Firms with higher Chief Executive Officer (CEO) ownership and longer CEO tenure are more likely to have zero debt, especially if boards are smaller and less independent. Family firms are also more likely to be zero-levered.

Keywords: Leverage; Debt financing; Capital structure; Zero leverage; Financing decisions; Low-leverage puzzle (search for similar items in EconPapers)
JEL-codes: G12 G32 G33 G34 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (177)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:109:y:2013:i:1:p:1-23

DOI: 10.1016/j.jfineco.2013.02.001

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