Dr. San Martín-Mosqueira, Pablo

This study analyzes the zero-debt decisions of BRICS firms using a bivariate probit model. The leading hypotheses are financial flexibility and financial constraints. On the demand-side, our findings reveal that managerial debt aversion, early lifecycle stage, growth opportunities, solvency, and concentrated ownership contribute to the lack of debt. Similarly, a country's institutional quality correlates with firms' debt-free status. On the supply-side, creditors fund companies with poor financial records in countries with robust markets and economic freedom. Financial flexibility and restrictions leading to zero debt are linked to firm and institutional characteristics in emerging countries.

Capital structure theories are unable to properly explain the zero-debt puzzle, frequently observed in firms around the world. Our paper’s contribution is to identify the variables that measure either firm’s characteristics or environmental effects, in order to explain why firms have and eventually keep a debt-free policy. Our study includes a comprehensive sample of firms from 47 countries in the period 1996–2014. Our results indicate that all equity companies are small, with no growth opportunities, with a low level of tangible assets, high proportion of liquid assets, profitable, and with diluted insider ownership. Furthermore, it is more probable to find low levels of debt in countries with good governance indicators or when the economy is not growing.