The zero-leverage policy and family firms
ISSN: 0307-4358
Article publication date: 9 March 2023
Issue publication date: 29 August 2023
Abstract
Purpose
The purpose of the study is to examine the zero-leverage (ZL) phenomenon in family and non-family firms.
Design/methodology/approach
The authors consider three hypotheses and empirically test them using a sample of the largest US firms over the 2001–2016 period.
Findings
The authors find that, on average, 19.20% of family firms have zero debt vs 10.42% for non-family firms. The authors also find that family firms strategically choose to be ZL to maintain financial flexibility for future investments and exercise control over the decision-making process, consistent with the hypotheses of financial flexibility and control considerations. However, non-family firms are more likely to have zero debt if they have financial constraints and the credit market does not lend them money at affordable credit rates, consistent with the financial constraint hypothesis.
Originality/value
This paper contributes to different strands of literature. First, the authors contribute to the literature examining family firms' financial decisions. Second, the authors complement previous studies by exploring the reasons for the ZL behavior of family firms compared to non-family firms. The authors also examine the previously unexplored impact of ownership concentration on the ZL question.
Keywords
Acknowledgements
The authors gratefully acknowledge the financial support of the CDPQ Research Chair in Portfolio Management of the School of Management (UQAM). The authors are responsible for any remaining errors.
Citation
Fardnia, P., Kooli, M. and Kumar, S. (2023), "The zero-leverage policy and family firms", Managerial Finance, Vol. 49 No. 9, pp. 1420-1437. https://doi.org/10.1108/MF-09-2022-0439
Publisher
:Emerald Publishing Limited
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