| The Effect of Zero-Leverage on Firm Value: Evidence from Korean Listed Firms |
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Soo-young Hwang, Jung-jin Lee |
| 무차입경영의 결정요인과 기업가치와의 관계 |
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황수영, 이정진 |
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| Abstract |
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This study analyzes why some firms have no debt in their capital structure despite the potential benefits of debt financing. We also examine the effect of zero-leverage on firm value. Analyzing a sample of Korean non-financial listed companies in KOSPI and KOSDAQ from 2000 to 2012, we find that zero-leverage firms are smaller and have more cash flow and less tangible assets. Zero-leverage firms also tend to accumulate more cash. But the relation between zero-leverage and income tax is not significant. Firms which have low financial distress and high payout ratio are more likely to choose zero-leverage decision. The higher the proportion of the largest shareholder’s shares, the foreigner’s shares, and the outside directors, the firms are likely to choose zero-leverage. In terms of the macroeconomic variables, the real GDP growth rate has significant negative effect on a firm’s propensity to become zero-leverage. This would imply that zero-leverage policy is driven by adverse macroeconomic conditions that are not conducive to borrowing. Regarding the effect of zero-leverage on firm value, we show that the firm value of the zero-leverage firms are higher than those of levered firms. These results suggest that Investors tend to reward zero-leverage firms that have high growth opportunities as well as low financial distress and accumulate cash to preserve their financial flexibility. And we find that firms which remain zero-leverage policy for at least three consecutive years can avoid debt financing to strategically and intentionally increase firm value. And we construct zero-leverage firm into financial constrained firms and financial unconstrained firms. The firm value of constrained zero-leverage firms are higher than those of unconstrained zero-leverage firms. |
| Key Words:
기업가치,무차입경영,자본구조,재무유연성,차입경영,Capital Structure,Financial Flexibility,Firm Value,Levered Firm,Zero-Leverage Firm |
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