Zero Leverage Phenomena of Pakistani Listed Firms

Posted: 1 Aug 2017 Last revised: 16 Dec 2018

See all articles by Adnan Manzoor

Adnan Manzoor

Government College University- Faisalabad

Muhammad Sajid

Government College University- Faisalabad

Rizwan Mushtaq

Université Paris I Panthéon-Sorbonne

Date Written: January 7, 2017

Abstract

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

Suggested Citation

Manzoor, Adnan and Sajid, Muhammad and Mushtaq, Rizwan, Zero Leverage Phenomena of Pakistani Listed Firms (January 7, 2017). Available at SSRN: https://ssrn.com/abstract=3011085 or http://dx.doi.org/10.2139/ssrn.3011085

Adnan Manzoor

Government College University- Faisalabad ( email )

Allama Iqbal Road
Faisalabad, NM Punjab 38000
Pakistan

Muhammad Sajid (Contact Author)

Government College University- Faisalabad ( email )

Allama Iqbal Road
Faisalabad, NM Punjab 38000
Pakistan

Rizwan Mushtaq

Université Paris I Panthéon-Sorbonne ( email )

12 place du Panthéon
Paris, 75005
France

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