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The New Strategy of High-Tech Companies Hidden Sources of Growth

Author

Listed:
  • Maria Kokoreva

    (National Research University Higher School of Economics (Russia))

  • Anastasia Stepanova

    (National Research University Higher School of Economics (Russia))

  • Kirill Povkh

    (National Research University Higher School of Economics (Russia))

Abstract

The recent increase in the share of zero-leverage firms is most pronounced in the Software and Services, Hardware Equipment, and Pharmaceutical and Biotechnical industries. The reasons for these industries conservative debt policies are not fully disclosed. How companies in technological sectors manage to perform well attracting no debt and loosing debt tax shield benefits is a mystery. This study aims to determine why high-tech firms are less likely to have debt in the capital structure. On the basis of a sample of US-based firms from the RUSSELL 3000 index for 12 years, we show the factors leading to a zero-debt structure. After dividing the sample into high-tech and non-high-tech subsamples, we demonstrate the gap between zero-debt motives for technological and traditional sectors. We show that the common determinants of corporate structure cannot fully explain why high-tech firms choose a zero-debt policy. Testing the possible motives of debt financing avoidance, we find that high-tech firms are more financially constrained than non-high-tech firms. We further show that unconstrained high-tech firms may avoid debt to maintain their financial flexibility. On top of that, managerial entrenchment also adds to the zero-leverage choice of high-tech companies. The study results are helpful for executive management teams and investors since they shed light on the specific style of financing choice for technological firms.

Suggested Citation

  • Maria Kokoreva & Anastasia Stepanova & Kirill Povkh, 2023. "The New Strategy of High-Tech Companies Hidden Sources of Growth," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 17(1), pages 18-32.
    • Handle: RePEc:hig:fsight:v:17:y:2023:i:1:p:18-32
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    capital structure; leverage; financial flexibility; financial constraint; zero-leverage; zero debt; high-tech firm; managerial entrenchment;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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