An Empirical Analysis Of Zero-Leverage And Ultra-Low Leverage Firms: Some U.K. Evidence

This paper studies conservative debt policies, focusing on firms with no debt (zero leverage) or with extremely low debt. Firms maintaining zero leverage or ultra-low leverage are generally smaller, younger, and less profitable but have a higher payout ratio. These firms also have substantial cash reserves and rely heavily on equity financing in order to mitigate underinvestment incentives. Firms with high-growth opportunities are more likely to adopt and switch to an extremely conservative debt policy. Firms with a large deviation from the target leverage are more likely to lever up.