Why are firms unlevered? |
| |
| Authors: | Erik Devos Upinder Dhillon Murali Jagannathan Srinivasan Krishnamurthy |
| |
| Institution: | 1. Stockholm School of Economics and Swedish House of Finance, Drottninggatan 98, Stockholm 11160, Sweden;2. School of Finance, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai 200433, China;3. Vienna University of Economics and Business (CEPR and ECGI), Welthandelsplatz 1, Vienna 1020, Austria;1. University of Arizona, Eller College of Management, 1130 East Helen St., Tucson, AZ 85721, United States;2. University of Kentucky, Gatton College of Business and Economics, 550 S Limestone, Lexington, KY 40506, United States;1. Robert H. Smith School of Business, University of Maryland, College Park, MD 20742, USA;2. Huntsman School of Business, Utah State University, Logan, UT 84322, USA;1. Florida Atlantic University, College of Business, Boca Raton, FL 33431, United States;2. University of Missouri, Trulaske College of Business, Columbia, MO 65201, United States;3. Nanyang Technological University, Nanyang Business School, Singapore 639798, Singapore |
| |
| Abstract: | In this paper, we examine why firms have no debt in their capital structure. We reject the hypothesis that zero-leverage policies are driven by entrenched managers attempting to avoid the disciplinary pressures of debt. These firms do not have weaker internal or external governance mechanisms. The debt initiation decisions of these firms are not preceded by shocks to their entrenchment, such as takeover threats or the emergence of activist blockholders. Our evidence supports the hypothesis that these firms are financially constrained. Zero-debt firms are small, young, conserve cash from cash-flow, and are more likely to lease their assets. When they have access to a line of credit, they face stricter covenants and higher all-in costs than comparable control firms. They lose market share in economic downturns, consistent with the financial constraints explanation, but inconsistent with theories of predation which suggest that they may be voluntarily stockpiling debt capacity. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
