{"title":"Zero-debt capital structure and the firm life cycle: empirical evidence from privately held SMEs","authors":"Vivien Lefebvre","doi":"10.1080/13691066.2021.2001700","DOIUrl":null,"url":null,"abstract":"ABSTRACT Recent research on firms’ capital structure highlights that up to 25% of publicly listed firms are zero-debt firms, a stylized fact that challenges financial theory. In this paper, we study privately held zero-debt small and medium-sized enterprises (SMEs) and identify that approximately 20% of our observations correspond to zero-debt firms. This result is especially surprising in the context of a bank-oriented economy, France. We show that the likelihood of being a zero-debt firm is higher when firms are new-born, which is not surprising, but also when they grow older. In other words, we observe a U-shaped relationship between age and the likelihood of being a zero-debt firm. Our results are consistent with the idea that new-born firms cannot access debt-financing because of a lack of reputation and high informational opacity. When firms grow older, they decide to become debt-free to preserve their financial flexibility and to reduce their dependency toward banks. Overall, this paper suggests that SMEs depend less on bank financing than currently assumed.","PeriodicalId":46643,"journal":{"name":"Venture Capital","volume":null,"pages":null},"PeriodicalIF":2.8000,"publicationDate":"2021-10-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"5","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Venture Capital","FirstCategoryId":"91","ListUrlMain":"https://doi.org/10.1080/13691066.2021.2001700","RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 5
Abstract
ABSTRACT Recent research on firms’ capital structure highlights that up to 25% of publicly listed firms are zero-debt firms, a stylized fact that challenges financial theory. In this paper, we study privately held zero-debt small and medium-sized enterprises (SMEs) and identify that approximately 20% of our observations correspond to zero-debt firms. This result is especially surprising in the context of a bank-oriented economy, France. We show that the likelihood of being a zero-debt firm is higher when firms are new-born, which is not surprising, but also when they grow older. In other words, we observe a U-shaped relationship between age and the likelihood of being a zero-debt firm. Our results are consistent with the idea that new-born firms cannot access debt-financing because of a lack of reputation and high informational opacity. When firms grow older, they decide to become debt-free to preserve their financial flexibility and to reduce their dependency toward banks. Overall, this paper suggests that SMEs depend less on bank financing than currently assumed.
期刊介绍:
Venture Capital publishes cutting edge research-based papers from academics and practitioners on all aspects of private equity finance such as: •institutional venture capital •informal venture capital •corporate venture capital •public sector venture capital •community venture capital It also covers all aspects of the venture capital process from investment decision to exit, including studies on: •investment patterns •investment decision-making •investment performance •realisation of investment value exit routes (including the relationship with junior capital markets such as NASDAQ, EASDAQ, AIM and Nouvelle March). •economic impact and public policy