The Mystery of Zero-Leverage Firms

Strebulaev, Ilya A.; Yang, Baozhong

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The Mystery of Zero-Leverage Firms

Journal of Financial Economics (JFE), Forthcoming

61 Pages Posted: 6 Apr 2013

See all articles by Ilya A. Strebulaev

Ilya A. Strebulaev

Stanford University - Graduate School of Business; National Bureau of Economic Research

Baozhong Yang

Georgia State University - Robinson College of Business

There are 3 versions of this paper

Date Written: February 20, 2013

Abstract

We present the puzzling evidence that, from 1962 to 2009, an average 10.2% of large public nonfinancial US firms have zero debt and almost 22% have less than 5% book leverage ratio. Zero-leverage behavior is a persistent phenomenon. Dividend-paying zero-leverage firms pay substantially higher dividends, are more profitable, pay higher taxes, issue less equity, and have higher cash balances than control firms chosen by industry and size. Firms with higher Chief Executive Officer (CEO) ownership and longer CEO tenure are more likely to have zero debt, especially if boards are smaller and less independent. Family firms are also more likely to be zero-levered.

Keywords: Leverage, Debt financing, Capital structure, Zero leverage, Financing

JEL Classification: G12, G32, G33, G34

Suggested Citation: Suggested Citation

Strebulaev, Ilya A. and Yang, Baozhong, The Mystery of Zero-Leverage Firms (February 20, 2013). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2245034