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The international zero-leverage phenomenon

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  • Bessler, Wolfgang
  • Drobetz, Wolfgang
  • Haller, Rebekka
  • Meier, Iwan
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    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.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 23 (2013)
    Issue (Month): C ()
    Pages: 196-221

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    Handle: RePEc:eee:corfin:v:23:y:2013:i:c:p:196-221

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    Web page: http://www.elsevier.com/locate/jcorpfin

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    Keywords: Capital structure; Debt conservatism; Financial constraints; Financial flexibility;

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