Why do firms choose negative net debt policy?

This study investigates a new phenomenon that the number of firms that have negative net debt is increasing. Although zero-leverage becomes prevalent in the world, negative net debt phenomena is more prevalent in Japan. We argue that negative net leverage can be regarded as a special form of zero gross leverage. The main findings are (i) poor investment opportunity, low default costs, low cost of holding cash, and abundant cash are the driving forces of negative net leverages, determinants a cash rich firm is more likely to have negative net debt, (ii) the determinants of negative net leverage is qualitatively similar to those of zero leverage, (iii) in particular, higher default probability is a determinant of debt reduction, lower cost of holding cash is a determinant of cash accumulation, less profitable opportunity is a determinant of decreasing dividends, and (iv) firms continue to reduce debts, increase dividend payments and investments over time after achieving negative net leverage.