Zero Leverage Phenomena of Pakistani Listed Firms
Posted: 1 Aug 2017 Last revised: 16 Dec 2018
Date Written: January 7, 2017
Current study presenting the recent puzzling issue that in spite of potential benefits of leverage why so many firms alleviate debt financing. We took sample of Pakistani nonfinancial listed firms for the period of 2009-2014 and investigated that either firms adopt such policy intentionally, or due to unavoidable circumstances firm have to select financial conservative behavior. Correlation, T statistics, Logit and OLS regression model are used in order to go inside the determinants of zero leverage behavior. Results show that zero leverage dividend payers strategically adopt zero leverage policy which have higher cash holdings, better liquidity and growth opportunities and improved performance. While non payers are constrained firms which remained zero leverage due to rationed by creditors. Zero leverage firms have higher cash flows, pay more taxes, less tangibles, having more growth opportunities, capable to invest more, positively affected by impact of GDP growth, highly liquid and contain more stock volatility in contrast to levered firms. Findings of current study provide key insight to individuals’ equity investors, fund’s managers while corporate governance effect on zero leverage decision is still open question in Pakistan.
Keywords: Capital Structure, Zero Leverage, Size, Financial Constraint, Growth Opportunities, Macroeconomic Impact, Pakistan
JEL Classification: F62, G31, G32, L25
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