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The zero-debt puzzle in BRICS countries: Disentangling the financial flexibility and financial constraints hypotheses

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  • Saona, Paolo
  • San-Martin, Pablo
  • Vallelado, Eleuterio

Abstract

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.

Suggested Citation

  • Saona, Paolo & San-Martin, Pablo & Vallelado, Eleuterio, 2024. "The zero-debt puzzle in BRICS countries: Disentangling the financial flexibility and financial constraints hypotheses," Emerging Markets Review, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:ememar:v:61:y:2024:i:c:s156601412400058x
    DOI: 10.1016/j.ememar.2024.101163
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    More about this item

    Keywords

    Zero leverage; BRICS; Financial flexibility; Financial restrictions; Capital structure; Bivariate probit model;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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