Tallinn University of Technology

You are welcome to the Department of Economics and Finance research seminar "What Explains the Zero-Debt Puzzle in BRICS Countries? Disentangling the Financial Flexibility and Financial Constraints Hypotheses".

The seminar will take place on the 15th of May, from 16:00 to 17:00 in room SOC-413 and MS Teams platform  (link).

Presenter: Eleuterio Vallelado  (University of Valladolid)

Paper title: What Explains the Zero-Debt Puzzle in BRICS Countries? Disentangling the Financial Flexibility and Financial Constraints Hypotheses
Eleuterio Vallelado joint work with Paolo Saona (Saint Louis University; Universidad Católica de la Santísima Concepción and Universidad Pontificia Comillas) ja Pablo San-Martin (Universidad Católica de la Santísima Concepción)


Using a sample of firms from BRICS countries in the period 2010–21, this study assesses the demand and supply sides of debt of companies’ propensity to be unleveraged. This is the first study to provide a formal empirical test of the financial flexibility and financial constraints hypotheses using firm- as well as country-based variables in the context of emerging countries. A bivariate probit model with partial observability in the sense of Poirier (1980) is used as a primary econometric technique. On the demand side, the results show that the propensity for a company to be unleveraged increases when the managers are debt averse and/or the company is in its earliest life cycle stage. Enjoying significant growth opportunities, being solvent and exhibiting a concentrated ownership structure contribute to becoming a low-leveraged company. A country’s institutional quality correlates with the chances of being a debt-free firm. On the supply side, creditors will provide resources to companies without the best financial reporting records if they operate in countries with more developed capital markets and significant economic freedom. The likelihood of being a low-leveraged company due to financial flexibility increases with the firm’s market capitalization, pay-out-ratio, growth opportunities, financial health, and ownership structure. Financial restrictions drive companies’ low-leveraged capital structure as they are small, exhibit shrinking profitability, dispersed ownership structure, reduced dividends, and operate in BRICS-based countries with low economic freedom.

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month in online format, unless announced otherwise. The seminar will last one hour, presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Questions about the seminar can be sent to the seminar coordinator Natalia Levenko: natalia.levenko@taltech.ee.