Analyzing the Factors of Companies' Choice of Debt-free Financing

This study investigates the factors that influence Russian firms' adoption of zero or near-zero leverage financial policies. Specifically, it investigates how financial distress, profitability, asset materiality, and financial flexibility affect the likelihood that firms choose to operate with no or minimal debt. The study analyzes data from 2018 to 2022 using logistic regression models on panel data with fixed effects to robustly estimate the impact of these factors. The results show that contrary to typical expectations in Western economies, financial distress in the Russian context leads firms to prefer not to opt for debt-free financing policies, probably due to limited financing alternatives. Moreover, the results of the study confirm that higher profitability and capital costs increase the probability that a firm adopts a zero leverage policy. At the same time, firms exhibiting high asset materiality tend to prefer leverage. This study addresses a significant gap in the existing literature by focusing on the Russian market, where economic and financial dynamics differ markedly from the more commonly studied Western environment. The results of this study are particularly important for financial managers and policy makers as they provide insights into the complexities of capital structure decision making in emerging markets, thereby improving strategic financial planning and policy making in the face of economic volatility.