Zero-Leverage Puzzle: An International Comparison
Review of Finance
76 Pages Posted: 12 Oct 2016 Last revised: 7 Mar 2023
Date Written: October 12, 2016
Using a large sample of firms from developed and developing countries over the 1990 to 2010 period, we document evidence of zero-leverage firms around the world. Further, we find strong and robust evidence that in countries with high scores on Schwartz’s Conservatism and Mastery indices as well as high levels of trust, firms are more likely to employ a zero-leverage policy, after controlling for various firm- and country-level determinants of leverage. Finally, we find that firms with zero leverage have a lower cost of equity capital in countries where a zero-leverage policy is more compatible with the local culture.
Keywords: Capital structure, Debt financing, Zero leverage, Informal institutions
JEL Classification: G32, Z10
Suggested Citation: Suggested Citation