Zero-Leverage Puzzle: An International Comparison

Forthcoming in the Review of Finance

76 Pages Posted: 12 Oct 2016 Last revised: 27 Oct 2016

See all articles by Sadok El Ghoul

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business

Xiaolan Zheng

Nottingham Business School China

Date Written: October 12, 2016

Abstract

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

El Ghoul, Sadok and Guedhami, Omrane and Kwok, Chuck C.Y. and Zheng, Xiaolan, Zero-Leverage Puzzle: An International Comparison (October 12, 2016). Forthcoming in the Review of Finance. Available at SSRN: https://ssrn.com/abstract=2851302 or http://dx.doi.org/10.2139/ssrn.2851302

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-3606 (Phone)
803-777-3609 (Fax)

Xiaolan Zheng

Nottingham Business School China ( email )

199 Taikang East Road
AB 469
ningbo, Zhejiang 315100
China

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