Financial Constraints versus Financial Flexibility: What Drives Zero-Debt Puzzle in Emerging Markets?

Russian Management Journal 16 (3): 407–434 doi:10.21638/spbu18.2018.305

28 Pages Posted: 27 Jun 2019

See all articles by Denys Iliasov

Denys Iliasov

Queen Mary University of London

Maria Kokoreva

National Research University Higher School of Economics

Date Written: October 19, 2018

Abstract

This study is focused on gaps in the theory of capital structure research regarding the phenomenon of zero-debt behavior. On the sample of firms from 21 countries with emerging capital markets over the period of 2010–2015, we show that the zero-debt policy choice is firstly driven by financial flexibility motive, while financial constraints could be regarded as the second motive. We show that major determinants of the zero-leverage choice are growth opportunities, profitability, business risk and cash holdings. We find that all these firms are smaller, less profitable, riskier and possess high cash holdings. Moreover, we find that macroeconomic conditions have lower influence on the debt policy decision in comparison with corporate determinants.

Keywords: financial constraints, financial flexibility, zero-debt, capital structure

JEL Classification: G32

Suggested Citation

Iliasov, Denys and Kokoreva, Maria, Financial Constraints versus Financial Flexibility: What Drives Zero-Debt Puzzle in Emerging Markets? (October 19, 2018). Russian Management Journal 16 (3): 407–434 doi:10.21638/spbu18.2018.305, Available at SSRN: https://ssrn.com/abstract=3409823

Denys Iliasov (Contact Author)

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Maria Kokoreva

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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