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An Exploration on Motivations of Listed Firms’ Zero-Debt Behavior in China

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DOI: 10.23977/ferm.2021.040102 | Downloads: 12 | Views: 1149


Hao Meng 1


1 Economics and Management School, Wuhan University, Wuhan 430072, P.R.China

Corresponding Author

Hao Meng


Classical capital structure theory holds that firms can promote their value through debt financing. However, in reality, many firms choose zero-debt capital structure, it has become more and more general to avoid debt financing, and the appearing of zero-debt firms have become an international phenomenon. What has motivated firms to avoid debt financing despite of the benefits of it? Using a panel of Chinese A-share listed firms from 2007 to 2015 as the research object, this paper studies the motivations of firms’ zero-debt strategy from several perspectives. The empirical analysis shows that firms may choose to be debt-free due to financial constraints or out of financial flexibility and investment opportunities. Besides, firms with sufficient internal funds tend to be debt-free. Based on the conclusions, we can draw enlightenments of reference value from two aspects: SME financing and financial flexibility of listed firms.


capital structure, debt-free, financial constraints, financial flexibility, investment opportunities


Hao Meng, An Exploration on Motivations of Listed Firms’ Zero-Debt Behavior in China. Financial Engineering and Risk Management (2021) 4: 29-42. DOI:


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