Ownership and Zero-Leverage Puzzle: an Evidence from US-Based Companies

During recent years the ownership of institutional investor has increased thereby raising the problem of their importance on company choice of optimal capital structure. Among institutional investor grey and independent types are distinguished based on investment horizon and risk preferences criteria. For example, grey investors are banks, government pension sponsors and charitable foundations. They differ with short-term investment horizon, lower risk-averse preferences and management alignment. In contrast, independent institutional investors such as traditional investment managers and hedge fund managers are long-term oriented investors with low level of acceptable risk. All of this fully reflect in company financing decisions as well as managerial ownership issues. Based on the sample gathered for 2165 US-based companies from RUSSEL 3000 for the period 2009-2018 we found that different types of investors have different effect on company probability to follow zero-leverage policy. Our findings suggest that there exists a non-linear relationship between managerial ownership and leverage. Moreover, companies with concentrated grey institutions ownership tend to raise more debt and not to follow zero-leverage policy in contrast to companies with the prevalence of independent investors.