Empirical Study On Performance Of Zero-Leverage Companies In Retail Industry Chain

Some firms give up debt financing and choose the extreme financial conservative strategy – zero leverage in reality,although the traditional theories of capital structure argue that there is benefit to maximize the shareholder value if the firm has moderate debts.This phenomenon is referred to as the mystery of zero leverage and it has raised the attention of the researchers.Using China A share listed companies during the year from 1995 to 2015 as the research objects,the zero-leverage companies are matched with leverage companies according to the rules of year,industry and asset size first.Second,zero-leverage and leverage company portfolios are built respectively.The difference of the financial and market performance between zero-leverage and leverage companies is further analyzed.It compares to the zero-leverage and leverage company portfolios' market performance and buy-and-hold abnormal returns,tests the financial performance of zero-leverage companies and their matched companies.Studies are made on manufactories,wholesaler,and retailer respectively,as different roles in retail industry chain.Last,further study is made especially on China's zero-leverage listed manufactories,which has a better performance.Reasons for zero-leverage strategy of China's zero-leverage listed manufactories are also concluded.The results indicate that zero-leverage companies' financial performances,whatever as a manufactory,or a wholesaler,or a retailer,are better than the leverage companies'.Comparing to the leverage companies,the manufactory zero-leverage companies have better market performance,although there is no significant difference between wholesaler and retailer zero-leverage and leverage company portfolios market performance.As well,zero-leverage manufactories have still significantly positive excess returns after controlling risk factors such as market,book-market ratio and size.In addition,internal cash flow sufficiency is the key factor of listed manufactory zero-leverage companies.Last,consumer-oriented manufactories have higher dividends,and they are more suitable for fixed-income portfolio.In all,the research evidence of debt-free firms is expanded on one band.At the same time,its conclusions have a guiding significance and reference value for investors to identify the effect factors on the firm's performance,and help them to make investment decision.