An Exploration on Motivations of Listed Firms’ Zero-Debt Behavior in China
DOI: 10.23977/ferm.2021.040102 | Downloads: 11 | Views: 1121
Author(s)
Hao Meng 1
Affiliation(s)
1 Economics and Management School, Wuhan University, Wuhan 430072, P.R.China
Corresponding Author
Hao MengABSTRACT
Classical capital structure theory holds that firms can promote their value through debt financing. However, in reality, many firms choose zero-debt capital structure, it has become more and more general to avoid debt financing, and the appearing of zero-debt firms have become an international phenomenon. What has motivated firms to avoid debt financing despite of the benefits of it? Using a panel of Chinese A-share listed firms from 2007 to 2015 as the research object, this paper studies the motivations of firms’ zero-debt strategy from several perspectives. The empirical analysis shows that firms may choose to be debt-free due to financial constraints or out of financial flexibility and investment opportunities. Besides, firms with sufficient internal funds tend to be debt-free. Based on the conclusions, we can draw enlightenments of reference value from two aspects: SME financing and financial flexibility of listed firms.
KEYWORDS
capital structure, debt-free, financial constraints, financial flexibility, investment opportunitiesCITE THIS PAPER
Hao Meng, An Exploration on Motivations of Listed Firms’ Zero-Debt Behavior in China. Financial Engineering and Risk Management (2021) 4: 29-42. DOI: http://dx.doi.org/10.23977/ferm.2021.040102
REFERENCES
[1] Bessleres, W., Drobertz, W., Haller, R. and Meier, I. (2013) The International Zero-leverage Phenomenon. Journal of Corporate Finance, 23, 196-221.
[2] Byoun, S, Xu, Z. (2013) Why Do Some Firms Go Debt-Free. Journal of Financial Studies. 42, 1-38.
[3] Dang, V.A. (2013) an Empirical Analysis of Zero-Leverage Firms: New Evidence from the UK. International Review of Financial Analysis, 30, 189-202.
[4] Devos, E, Dhillon, U, Jagannathan, M, Krishnamurthy, S. (2012) Why Are Firms Unlevered. Journal of Corporate Finance, 18, 664-682.
[5] Goldstein, R, Ju, N, Leland, H. (2001) an EBIT-Based Model of Dynamic Capital Structure. Journal of Business, 74, 483-512.
[6] Graham, J.R. (2000) How Big Are the Tax Benefits of Debt. Journal of Finance, 55, 1904-1941.
[7] Korteweg, A.G. (2010) the Net Benefits to Leverage. Journal of Finance, 65, 2137-2170.
[8] Miller, M.H. (1977) Debt and Taxes. Journal of Finance, 32, 261-275.
[9] Morellec, E. (2004) Can Managerial Discretion Explain Observed Leverage Ratios. Review of Financial Studies, 17, 257-294.
[10] Strebulaev, I.A, Yang, B. (2013) the Mystery of Zero-Leverage Firms. Journal of Financial Economics, 109, 1-23.
[11] Tang Qiming, Huang Kun. (2016) the Evolution of Zero-Leverage Trend and Firms’ Financial Characteristics. Collected Essays on Finance and Economics, 4, 62-71.
[12] Zhang Xindong, Zhang Li. (2013) the Zero-Leverage Phenomenon of the Enterprises under Pyramidal Structure. Research on Economics and Management. 8, 48-56.
[13] Zhang Xindong, Chen Xiang. (2013) the Determinants of the Phenomenon of Zero-Leverage Firms in the Listed Real Estate Industry. The Theory and Practice of Finance and Economics. 34, 78-82.
[14] Zhao Pu, Sun Aiying. (2004) Financial Conservationism: A Study Based on the case of China’s Listed Companies. Management World. 11, 109-118.
Downloads: | 16195 |
---|---|
Visits: | 334302 |
Sponsors, Associates, and Links
-
Information Systems and Economics
-
Accounting, Auditing and Finance
-
Industrial Engineering and Innovation Management
-
Tourism Management and Technology Economy
-
Journal of Computational and Financial Econometrics
-
Accounting and Corporate Management
-
Social Security and Administration Management
-
Population, Resources & Environmental Economics
-
Statistics & Quantitative Economics
-
Agricultural & Forestry Economics and Management
-
Social Medicine and Health Management
-
Land Resource Management
-
Information, Library and Archival Science
-
Journal of Human Resource Development
-
Manufacturing and Service Operations Management
-
Operational Research and Cybernetics