The phenomenon of zero-leverage policy: Literature review
Abstract
- One of the most puzzling, stylized facts in modern corporate finance is that many companies
worldwide persistently follow a zero-debt or almost-zero-debt policy. This paper reviews the
literature on this puzzling policy. We survey articles published in the Web of Science and the
SCOPUS databases since the zero-debt policy was first formally discussed in 1990 when zerolevered companies started to emerge. Our literature review provides unique conceptual and
methodological knowledge contributions, by critically analyzing prior works and paving the way
for the advancement of new paradigms. It traces the evolution of knowledge in the field of capital
structure by establishing connections among various literature works, creating a cohesive and
integrated understanding of the zero-debt puzzle. It offers insights from different perspectives
presented in each study, thereby enhancing comprehension. Moreover, it critically questions
existing theories’ adequacy in explaining the reasons behind a significant number of global
corporations opting to avoid debt.