Is the zero-leverage policy a persistent phenomenon? Evidence from Portuguese SMEs

Filipe Sardo, Zélia Serrasqueiro and Manuel Rocha Armada

Research in International Business and Finance, 2024, vol. 69, issue C

Abstract: This paper seeks to analyse the persistence of zero leverage policy in a panel data of Portuguese small and medium-sized enterprises for the period 2011–2017. Using transition probability matrices, we show the existence of state dependence on the zero leverage behaviour. Using dynamic probit models with random effects, to control the initial conditions problem and unobserved heterogeneity of firms, we find indications of “true” state dependence on the zero leverage phenomenon. The firm-specific characteristics, cash holdings, cash flows, and owners´ loans positively impact the probability of SMEs to adopt the zero leverage policy. The past zero leverage state is the most influential factor in explaining the current state of zero leverage policy.

Keywords: Persistence; SMEs; “true” state dependence; Spurious state dependence; Zero-leverage (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:69:y:2024:i:c:s0275531924000643

DOI: 10.1016/j.ribaf.2024.102271

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