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The Zero-leverage Puzzle : Evidence from Sweden

This study investigates why some firms have no debt in their capital structure despite the potential benefits of leverage. A logistic regression analysis is used to examine the impact of firm-specific characteristics on a firm’s propensity to have zero leverage. The validity of five theoretical explanations for the zero-leverage phenomenon are examined based on how the theories predict characteristics to affect a firm’s propensity to be unlevered. Analysing a new sample of Swedish firms listed on Nasdaq Stockholm in 2005-2018, I show that on average 14.2% of all firms are unlevered. The regression results suggest that the phenomenon of zero-leverage firms can be explained by a combination of several theories. Some firms seem forced to follow zero-leverage policies due to credit rationing by lenders. Others appear to be deliberately debt-free either because they have low needs of external financing or because they strategically want to avoid debt. The study’s main findings for zero-leverage firms are also robust to firms with very low debt (book leverage less than 5%).

Identiferoai:union.ndltd.org:UPSALLA1/oai:DiVA.org:uu-450351
Date January 2021
CreatorsSpennare, Karin
PublisherUppsala universitet, Företagsekonomiska institutionen
Source SetsDiVA Archive at Upsalla University
LanguageEnglish
Detected LanguageEnglish
TypeStudent thesis, info:eu-repo/semantics/bachelorThesis, text
Formatapplication/pdf
Rightsinfo:eu-repo/semantics/openAccess

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