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Is the zero-leverage policy a persistent phenomenon? Evidence from Portuguese SMEs

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  • Sardo, Filipe
  • Serrasqueiro, Zélia
  • Armada, Manuel Rocha

Abstract

This paper seeks to analyse the persistence of zero leverage policy in a panel data of Portuguese small and medium-sized enterprises for the period 2011–2017. Using transition probability matrices, we show the existence of state dependence on the zero leverage behaviour. Using dynamic probit models with random effects, to control the initial conditions problem and unobserved heterogeneity of firms, we find indications of “true” state dependence on the zero leverage phenomenon. The firm-specific characteristics, cash holdings, cash flows, and owners´ loans positively impact the probability of SMEs to adopt the zero leverage policy. The past zero leverage state is the most influential factor in explaining the current state of zero leverage policy.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:riibaf:v:69:y:2024:i:c:s0275531924000643
    DOI: 10.1016/j.ribaf.2024.102271
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    Keywords

    Persistence; SMEs; “true” state dependence; Spurious state dependence; Zero-leverage;
    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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