TY  - JOUR
AU  - Strebulaev,Ilya A.
AU  - Yang,Baozhong
TI  - The Mystery of Zero-Leverage Firms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17946
PY  - 2012
Y2  - March 2012
UR  - http://www.nber.org/papers/w17946
L1  - http://www.nber.org/papers/w17946.pdf
N1  - Author contact info:
Ilya A. Strebulaev
Graduate School of Business
Stanford University
655 Knight Way
Stanford, CA 94305
Tel: 650/725-8239
Fax: 650/725-7979
E-Mail: istrebulaev@stanford.edu

Baozhong Yang
J. Mack Robinson College of Business
Georgia State University
35 Broad Street, Suite 1243, Atlanta GA 30303
E-Mail: bzyang@gsu.edu
AB  - This paper documents the puzzling evidence that a substantial number of large public non-financial US firms follow a zero-debt policy. Over the 1962-2009 period, on average 10.2% of such firms have zero debt and almost 22% have less than 5% book leverage ratio. Neither industry nor size can account for such puzzling behavior. Zero-leverage behavior is a persistent phenomenon, with 30% of zero-debt firms refrain from debt for at least five consecutive years. Particularly surprising is the presence of a large number of zero-leverage firms who pay dividends. They are more profitable, pay higher taxes, issue less equity, and have higher cash balances than their proxies chosen by industry and size. These firms also pay substantially higher dividends than their proxies and thus their total payout ratio is virtually independent of leverage. Firms with higher CEO ownership and longer CEO tenure are more likely to follow a zero-leverage policy, especially if boards are smaller and less independent. Family firms are also more likely to be zero-levered. Our results suggest that managerial and governance  characteristics are related to the zero-leverage phenomena in an important way.
ER  -