Could High-Tech Companies Learn from Others While Choosing Capital Structure?

33 Pages Posted: 28 Oct 2017

See all articles by Maria Kokoreva

Maria Kokoreva

National Research University Higher School of Economics

Anastasia Stepanova

National Research University Higher School of Economics

Kirill Povkh

National Research University Higher School of Economics

Date Written: October 27, 2017

Abstract

This paper analyzes why high-tech firms are less likely to have debt in their capital structure. The share of zero-leverage firms increased in the US in the Software & Services, Hardware Equipment and the Pharmaceutical & Biotechnical industries which are treated as high-tech firms in our research. We divide the sample of US-based firms from the RUSSELL 3000 index for the period from 2004 to 2015 into two groups, one of them includes only high-tech firms, another contains all other firms from the sample. Traditional determinants of corporate structure such as size, age, asset tangibility, profitability and market-to-book ratio cannot fully explain why high-tech firms choose a zero-debt policy. We found that high-tech firms are more financially constrained than non-high-tech firms. The managerial entrenchment hypothesis could not predict zero-leverage for high-tech firms, but it can partially predict the debt conservatism of non-high-tech firms. The evidence shows that the excess cash hypothesis explains why unconstrained high-tech firms have zero-leverage but does not explain it for non-high-tech firms. Finally, we did not find a significant influence of the financial flexibility hypothesis for the decision of unconstrained high-tech firms to be unlevered, while for their non-high-tech counterparts this hypothesis fits.

Keywords: capital structure, zero-leverage, zero debt, high-tech firm

JEL Classification: Z

Suggested Citation

Kokoreva, Maria and Stepanova, Anastasia N. and Povkh, Kirill, Could High-Tech Companies Learn from Others While Choosing Capital Structure? (October 27, 2017). Higher School of Economics Research Paper No. WP BRP 62/FE/2017. Available at SSRN: https://ssrn.com/abstract=3060316 or http://dx.doi.org/10.2139/ssrn.3060316

Maria Kokoreva (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Anastasia N. Stepanova

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Kirill Povkh

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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