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The mystery of zero-leverage firms

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  • Strebulaev, Ilya A.
  • Yang, Baozhong
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    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.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 109 (2013)
    Issue (Month): 1 ()
    Pages: 1-23

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    Handle: RePEc:eee:jfinec:v:109:y:2013:i:1:p:1-23

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Leverage; Debt financing; Capital structure; Zero leverage; Financing decisions; Low-leverage puzzle;

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    Cited by:
    1. Dang, Viet Anh, 2013. "An empirical analysis of zero-leverage firms: New evidence from the UK," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 189-202.
    2. John Graham & Mark T. Leary & Michael R. Roberts, 2014. "A Century of Capital Structure: The Leveraging of Corporate America," NBER Working Papers 19910, National Bureau of Economic Research, Inc.
    3. Matthias Fahn & Valeria Merlo & Georg Wamser, 2014. "The Commitment Role of Equity Financing," CESifo Working Paper Series 4841, CESifo Group Munich.
    4. Bessler, Wolfgang & Drobetz, Wolfgang & Haller, Rebekka & Meier, Iwan, 2013. "The international zero-leverage phenomenon," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 196-221.
    5. William Gornall & Ilya A. Strebulaev, 2013. "Financing as a Supply Chain: The Capital Structure of Banks and Borrowers," NBER Working Papers 19633, National Bureau of Economic Research, Inc.

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