Why do firms choose zero-leverage policy? Evidence from China

In recent years, firms choosing zero-leverage policy have largely increased around the world. However, few studies have focused on why Chinese firms choose zero-leverage policy. In this article, we investigate the motivations for firms choosing zero-leverage policy from the perspective of financing needs. Using a sample of public firms listed in Shanghai and Shenzhen Stock market in China from 2007 to 2014, we find that firms without external financing needs are more likely to become zero-leverage firms, and that financial constraints and financial flexibility also may be the motivations for firms choosing zero-leverage policy.