The Mystery of Zero-Leverage Firms: Evidence from Nigerian Quoted Firms

Oluseun Paseda ()

GATR Journals from Global Academy of Training and Research (GATR) Enterprise

Abstract: Objective - Empirical finance literature has added a new twist to the debt conservatism puzzle within the broader capital structure puzzle, namely the phenomenon of zero leverage. Motivated by Strebulaev and Yang (2013), this study investigates the attributes of zero leverage firms in Nigeria in an attempt to add a developing country perspective to the zero-leverage phenomenon observed in firms. Methodology/Technique - The non-financial corporations quoted on the Nigerian Stock Exchange (NSE) for the period 1999-2014 constitute the population of the study. Firms with market leverage ratios ranging from 0% to 5% met the criteria for inclusion. Panel data regression techniques such as the generalized method of moments (GMM) and two stage least squares (2SLS) were used in the study. Finding - Zero leverage is persistent across 13 industries and is a declining function of the marginal tax rate, firm size, profitability, and liquidity. Firms that follow a zero-leverage (and almost zero-leverage) policy have higher growth opportunities, more tangible assets, pay higher dividends, are older, and have access to debt markets. Non-debt tax shields do not explain zero-leverage behaviour. Originality/Value - This study addresses the gaps related to the questions of why and how firm-specific attributes affect zero leverage behaviour among Nigerian quoted firms. It sheds light on the economic mechanisms driving zero leverage phenomenon within firms with high debt capacity.

Keywords: Capital Structure; Zero Leverage Puzzle; Tax Benefits; Debt Capacity; Financing Decisions. (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Pages: 28
Date: 2020-09-30
New Economics Papers: this item is included in nep-acc, nep-cfn and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Accounting and Finance Review, Volume 5, Issue 2

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