The Puzzle of Zero Debt Capital Structure in Emerging Capital Markets

Student: Ivanova Mariia

Educational Programme: Economics (Bachelor)

Year of Graduation: 2016

This study investigates the puzzle of zero-debt on developing markets, using the sample of firms form Eastern Europe during 2000-2013. The results are in line with previous research on developed markets. Firms can be divided on groups by their dividend status. Those that do not pay dividends face financial constraints while firms that pay dividends intentionally avoid debt to preserve financial flexibility and avoid underinvestment incentives. Furthermore, this study provides new insight on unconstrained firms’ performance during different economic situations. Firms that strategically avoid debt show better financial results than levered firms.

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