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The Mystery of Zero-Leverage Firms

Ilya A. Strebulaev

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

Baozhong Yang

Georgia State University - Robinson College of Business

February 20, 2012

We document the puzzling evidence that, from 1962 to 2009, an average 10.2% of large public non-financial U.S. 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 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.

Number of Pages in PDF File: 61

Keywords: Leverage, debt financing, capital structure, zero leverage, financing decisions, low-leverage puzzle

JEL Classification: G12, G32, G33, G34

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Date posted: March 14, 2006 ; Last revised: April 10, 2013

Suggested Citation

Strebulaev, Ilya A. and Yang, Baozhong, The Mystery of Zero-Leverage Firms (February 20, 2012). Available at SSRN: http://ssrn.com/abstract=890719 or http://dx.doi.org/10.2139/ssrn.890719

Contact Information

Ilya A. Strebulaev (Contact Author)
Stanford University - Graduate School of Business ( email )
655 Knight Way
Stanford, CA 94305-5015
United States
HOME PAGE: http://faculty-gsb.stanford.edu/strebulaev/

National Bureau of Economic Research ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Baozhong Yang
Georgia State University - Robinson College of Business ( email )
35 Broad Street
Atlanta, GA 30303-3083
United States
404-413-7350 (Phone)
404-413-7312 (Fax)
HOME PAGE: http://www2.gsu.edu/~fncbyy/index.html
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