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Ferrão, J., Curto, J. D. & Gama, A. P. (2016). Low-leverage policy dynamics: an empirical analysis. Review of Accounting and Finance. 15 (4), 463-483

J. Ferrão et al.,  "Low-leverage policy dynamics: an empirical analysis", in Review of Accounting and Finance, vol. 15, no. 4, pp. 463-483, 2016

@article{ferrão2016_1732205973397,
	author = "Ferrão, J. and Curto, J. D. and Gama, A. P.",
	title = "Low-leverage policy dynamics: an empirical analysis",
	journal = "Review of Accounting and Finance",
	year = "2016",
	volume = "15",
	number = "4",
	doi = "10.1108/RAF-09-2015-0135",
	pages = "463-483",
	url = "http://www.emeraldinsight.com/doi/pdfplus/10.1108/RAF-09-2015-0135"
}

TY  - JOUR
TI  - Low-leverage policy dynamics: an empirical analysis
T2  - Review of Accounting and Finance
VL  - 15
IS  - 4
AU  - Ferrão, J.
AU  - Curto, J. D.
AU  - Gama, A. P.
PY  - 2016
SP  - 463-483
SN  - 1475-7702
DO  - 10.1108/RAF-09-2015-0135
UR  - http://www.emeraldinsight.com/doi/pdfplus/10.1108/RAF-09-2015-0135
AB  - Purpose - The purpose of this paper is to provide new insights into the low-leverage phenomenon by analyzing the dynamics of firms' financing policies. The authors explore three theoretical explanations of firms' motivations to switch among different levels of debt aversion: financial constraints, financial flexibility and financial distress.
Design/methodology/approach - The authors apply a multilevel mixed-effects model to a panel data sample of 9,005 US listed firms during 1987-2014. To use a multinomial ordered logit model, the authors break down the low-leverage firms into several levels of debt aversion.
Findings - The empirical analysis provides four main findings. First, there is a dynamic behavior regarding leverage policy: after five years, 39.4 per cent of initial zero debt firms remain all-equity firms, 14.2 per cent are leveraged firms and approximately 19.7 per cent still adopt a low-leverage policy. Second, greater asset volatility increases the expected likelihood that firms will be debt averse. Third, when firms grow bigger and older, they show a greater likelihood of moving toward a higher leverage level. Fourth, results derived from the investment variables of research and development, acquisitions, and capital expenditure provide strong evidence in favor of the financial flexibility hypothesis.
Practical implications - These findings suggest that conservative debt policy is integrated with corporate investment decisions.
Originality/value - This paper contributes to extant literature by emphasizing the dynamic process associated with a low-leverage policy, unlike prior studies that focus on the determinants and characteristics of low-leverage firms. It also applies an econometric methodology that is new to the field: multilevel models.
ER  -