{"title":"Financial flexibility or financial constraints? Zero-leverage firms during the COVID-19 pandemic","authors":"Jiyoon Choi","doi":"10.1016/j.ribaf.2024.102663","DOIUrl":null,"url":null,"abstract":"<div><div>Using a large sample of firms across 42 countries, I analyze the investment and debt financing of zero-leverage firms during the COVID-19 crisis to shed light on the zero-leverage puzzle. I find empirical evidence supporting the hypothesis that the motivation behind zero-leverage capital structure is to preserve financial flexibility. Firms that were zero-levered immediately prior to the pandemic showed a smaller decline in investment and increased their leverage more than the levered firms, after controlling for firm-level characteristics. Empirical evidence suggests that zero-leverage firms utilized their excess debt capacity to raise debt financing to finance the cash flow shortfall and maintain the investment rate during the pandemic. The results also highlight the real effects of financial flexibility during crises and its importance in a firm’s capital structure choice.</div></div>","PeriodicalId":51430,"journal":{"name":"Research in International Business and Finance","volume":"74 ","pages":"Article 102663"},"PeriodicalIF":6.3000,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Research in International Business and Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0275531924004562","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Using a large sample of firms across 42 countries, I analyze the investment and debt financing of zero-leverage firms during the COVID-19 crisis to shed light on the zero-leverage puzzle. I find empirical evidence supporting the hypothesis that the motivation behind zero-leverage capital structure is to preserve financial flexibility. Firms that were zero-levered immediately prior to the pandemic showed a smaller decline in investment and increased their leverage more than the levered firms, after controlling for firm-level characteristics. Empirical evidence suggests that zero-leverage firms utilized their excess debt capacity to raise debt financing to finance the cash flow shortfall and maintain the investment rate during the pandemic. The results also highlight the real effects of financial flexibility during crises and its importance in a firm’s capital structure choice.
期刊介绍：
Research in International Business and Finance (RIBAF) seeks to consolidate its position as a premier scholarly vehicle of academic finance. The Journal publishes high quality, insightful, well-written papers that explore current and new issues in international finance. Papers that foster dialogue, innovation, and intellectual risk-taking in financial studies; as well as shed light on the interaction between finance and broader societal concerns are particularly appreciated. The Journal welcomes submissions that seek to expand the boundaries of academic finance and otherwise challenge the discipline. Papers studying finance using a variety of methodologies; as well as interdisciplinary studies will be considered for publication. Papers that examine topical issues using extensive international data sets are welcome. Single-country studies can also be considered for publication provided that they develop novel methodological and theoretical approaches or fall within the Journal''s priority themes. It is especially important that single-country studies communicate to the reader why the particular chosen country is especially relevant to the issue being investigated. [...] The scope of topics that are most interesting to RIBAF readers include the following: -Financial markets and institutions -Financial practices and sustainability -The impact of national culture on finance -The impact of formal and informal institutions on finance -Privatizations, public financing, and nonprofit issues in finance -Interdisciplinary financial studies -Finance and international development -International financial crises and regulation -Financialization studies -International financial integration and architecture -Behavioral aspects in finance -Consumer finance -Methodologies and conceptualization issues related to finance
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