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The phenomenon of zero-leverage policy: Literature review

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  • Saona, Paolo
  • Muro, Laura
  • Gregoriou, Andros

Abstract

One of the most puzzling, stylized facts in modern corporate finance is that many companies worldwide persistently follow a zero-debt or almost-zero-debt policy. This paper reviews the literature on this puzzling policy. We survey articles published in the Web of Science and the SCOPUS databases since the zero-debt policy was first formally discussed in 1990 when zero-levered companies started to emerge. Our literature review provides unique conceptual and methodological knowledge contributions, by critically analyzing prior works and paving the way for the advancement of new paradigms. It traces the evolution of knowledge in the field of capital structure by establishing connections among various literature works, creating a cohesive and integrated understanding of the zero-debt puzzle. It offers insights from different perspectives presented in each study, thereby enhancing comprehension. Moreover, it critically questions existing theories' adequacy in explaining the reasons behind a significant number of global corporations opting to avoid debt.

Suggested Citation

  • Saona, Paolo & Muro, Laura & Gregoriou, Andros, 2023. "The phenomenon of zero-leverage policy: Literature review," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001381
    DOI: 10.1016/j.ribaf.2023.102012
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    Cited by:

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    2. Chang, Chong-Chuo & Kyi, San-San & Yang, Kuen-Shiou & Wu, Hsiang-Pei, 2025. "Zero-leverage and firm performance – Evidence from Taiwan," Research in International Business and Finance, Elsevier, vol. 73(PB).
    3. Paulo Miguel Gama & Fátima Sol Murta & Elisabete S. Vieira, 2024. "Local banking development and SME conservative financing policy. Does bank branch density matter?," Small Business Economics, Springer, vol. 63(4), pages 1747-1765, December.
    4. Sardo, Filipe & Serrasqueiro, Zélia & Armada, Manuel Rocha, 2024. "Is the zero-leverage policy a persistent phenomenon? Evidence from Portuguese SMEs," Research in International Business and Finance, Elsevier, vol. 69(C).
    5. De Novellis, G. & Musile Tanzi, P. & Stanghellini, E., 2024. "Covenant-lite agreement and credit risk: A key relationship in the leveraged loan market," Research in International Business and Finance, Elsevier, vol. 70(PB).
    6. Choi, Jiyoon, 2025. "Financial flexibility or financial constraints? Zero-leverage firms during the COVID-19 pandemic," Research in International Business and Finance, Elsevier, vol. 74(C).
    7. Saona, Paolo & San-Martin, Pablo & Vallelado, Eleuterio, 2024. "The zero-debt puzzle in BRICS countries: Disentangling the financial flexibility and financial constraints hypotheses," Emerging Markets Review, Elsevier, vol. 61(C).
    8. Virginia Blanco-Mazagatos & M. Elena Romero-Merino & Marcos Santamaría-Mariscal & Juan Bautista Delgado-García, 2024. "One more piece of the family firm debt puzzle: the influence of socioemotional wealth dimensions," Small Business Economics, Springer, vol. 63(2), pages 831-849, August.

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    More about this item

    Keywords

    Zero leverage; Literature review; Capital structure; All-equity firms; Debt policy;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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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