The International Zero-Leverage Phenomenon

Posted: 5 Apr 2012 Last revised: 16 Oct 2014

See all articles by Wolfgang Bessler

Wolfgang Bessler

Justus-Liebig-University Giessen

Wolfgang Drobetz

University of Hamburg

Rebekka Haller

University of Hamburg

Iwan Meier

HEC Montreal - Department of Finance

Date Written: May 2013


Zero-leverage is an international phenomenon which has increased over time. The increasing prevalence of zero-leverage firms is related to IPO waves and the accompanying changes in industry composition. In addition, we attribute the higher propensity to maintain a zero-leverage policy throughout all size and age groups to increasing asset volatility and decreasing corporate tax rates during our sample period. Countries with a common law system, high creditor protection, and a dividend imputation or dividend relief tax system exhibit the highest percentage of zero-leverage firms. Analyzing supply-side capital market frictions, we find that only a small number of profitable firms with high payout ratios deliberately maintain zero-leverage. In contrast, most zero-leverage firms are con-strained by their debt capacity; they are smaller, riskier, and less profitable, and they are the most active equity issuers. With respect to the demand-side of financing choices, we show that firms which pursue a zero-leverage policy only for a short period of time seek financial flexibility. After abandoning zero-leverage, these mostly un-constrained firms switch to higher leverage ratios, make higher investments, and reduce their cash holdings by a larger amount compared to constrained zero-leverage firms, which remain debt-free for longer periods of time.

Keywords: Capital structure, zero-leverage, debt conservatism, financial constraints, financial flexibility

JEL Classification: G32

Suggested Citation

Bessler, Wolfgang and Drobetz, Wolfgang and Haller, Rebekka and Meier, Iwan, The International Zero-Leverage Phenomenon (May 2013). Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: or

Wolfgang Bessler

Justus-Liebig-University Giessen ( email )

Center for Finance and Banking
Licher Strasse 74
Giessen, D-35394
49-641-9922460 (Phone)
49-641-9922469 (Fax)


Wolfgang Drobetz

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148

Rebekka Haller (Contact Author)

University of Hamburg ( email )

Von-Melle-Park 5
Hamburg, 20146

Iwan Meier

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7 H2J 2K9
(514) 340-3198 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics