Повх Кирилл Сергеевич
Capital Structure of High-Tech Companies: Zero-Leverage Puzzle
In this paper we analyze why high-tech firms have no debt in their capital structure. The share of zero-leverage firms increased in the US in the Software & Services, Hardware Equipment and the Pharmaceutical & Biotechnical industries which are treated as high-tech firms in our research. We divide the sample of US-based firms from RUSSELL 3000 index for the period from 2004 to 2015 in two groups, one of them includes only high-tech firms, another contains all other firms from the sample. Traditional corporate structure determinants such as size, age, tangibility, profitability and market to book ratio cannot fully explain why high-tech firms choose the zero-debt policy. We found out that high-tech firms are more financially constrained than non-high-tech firms. Managerial entrenchment hypothesis could not predict zero-leverage for high-tech firms, but can partially predict debt conservatism of non-high-tech firms. Our evidence shows that the excess cash hypothesis explains why unconstrained high-tech firms have zero-leverage and do not explain it for non-high-tech firms. Finally, we have not found significant influence of financial flexibility hypothesis for the decision of unconstrained high-tech firms to be unlevered, while for their non-high-tech counterparts this hypothesis is suitable.