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Korean Journal of Financial Studies 2016;45(3):565-601.
Published online June 30, 2016.
The Effect of Zero-Leverage on Firm Value: Evidence from Korean Listed Firms
Soo-young Hwang, Jung-jin Lee
무차입경영의 결정요인과 기업가치와의 관계
황수영, 이정진
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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