The Prevalence of Zero Leverage Policy among Technology Driven Firms in EU countries

Abstract

The main aim of this thesis is to study the propensity of zero-leverage policy, with a special emphasis on high-tech firms based in Europe. This was achieved through a review of academic literature that served to clarify the relevance of such phenomenon across Europe and in sector wide contexts; and how alternative approaches such as financial constraints and financial flexibility theories could be applied to complement the arguments put forward by the traditional theories. Our analysis proves that the European countries with market-based (bank-based) systems and (low) high legal rights protection increase (decrease) the likelihood of high-tech firms resorting to zero-debt policy. Nevertheless, the choice of zero-leverage policy is mostly driven by internal factors rather than country-level ones, and the search for financial flexibility tends to be the major motive to have zero leverage which is followed by financial constraints motive.