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Could High-Tech Companies Learn from Others While Choosing Capital Structure?

Author

Listed:
  • Maria Kokoreva

    (National Research University Higher School of Economics)

  • Anastasia Stepanova

    (National Research University Higher School of Economics)

  • Kirill Povk

    (National Research University Higher School of Economics)

Abstract

This paper analyzes why high-tech firms are less likely to have debt in their capital structure. The share of zero-leverage firms increased in the US in the Software & Services, Hardware Equipment and the Pharmaceutical & Biotechnical industries which are treated as high-tech firms in our research. We divide the sample of US-based firms from the RUSSELL 3000 index for the period from 2004 to 2015 into two groups, one of them includes only high-tech firms, another contains all other firms from the sample. Traditional determinants of corporate structure such as size, age, asset tangibility, profitability and market-to-book ratio cannot fully explain why high-tech firms choose a zero-debt policy. We found that high-tech firms are more financially constrained than non-high-tech firms. The managerial entrenchment hypothesis could not predict zero-leverage for high-tech firms, but it can partially predict the debt conservatism of non-high-tech firms. The evidence shows that the excess cash hypothesis explains why unconstrained high-tech firms have zero-leverage but does not explain it for non-high-tech firms. Finally, we did not find a significant influence of the financial flexibility hypothesis for the decision of unconstrained high-tech firms to be unlevered, while for their non-high-tech counterparts this hypothesis fits

Suggested Citation

  • Maria Kokoreva & Anastasia Stepanova & Kirill Povk, 2017. "Could High-Tech Companies Learn from Others While Choosing Capital Structure?," HSE Working papers WP BRP 62/FE/2017, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:62/fe/2017
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    References listed on IDEAS

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    More about this item

    Keywords

    capital structure; zero-leverage; zero debt; high-tech firm;
    All these keywords.

    JEL classification:

    • Z - Other Special Topics

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