Performance of Debt Free Firms

The current issue and full text archive of this ledger is available at www.emeraldinsight.com/0307-4358.htm exploit of debt superfluous firms Tarek S. Zaher Analytical Department, College of Business, inch State University, Terre Haute, Indiana, USA Abstract Purpose The purpose of this paper is to find bulge out whether investors tend to reward firms that resist the urge to scoop and operated with debt free balance sheet and penalize firms that have high levels of debt. practice/methodology/approach The performance of portfolios of debt free firms are compared to corresponding portfolios of leveraged firms. Debt free firms are matched with conventional firms of the selfsame(prenominal) size from the same sector. Two tests of differences in the performance are conducted for a broad period and for a short period. Findings The results of the study indicate that enthronizations in portfolios of debt free firms tend to generate higher returns than investments in their peers of portfolios of leveraged firms oer long and short periods. The results have clear implications on investment decisions and investment performance. Investors tend to reward firms that resist the urge to borrow heavily and operate with debt free balance sheet and penalize firms that have high level of debt.

Originality/value The results of the study sight be of great interest to investors as well as firms specially during periods of financial crises. It raises again the question as to what is the optimal level of debt a firm should have in conventionality times and during periods of economic or financial crises. Keywords Capital structure, investitures, Investment appraisal, Performance management, Debt capital Paper type Research paper Performance of debt free firms 491 1. Introduction Many investors believe that the earnings of a company drive the returns to shareholders in the form of rising parentage prices. For these investors the profit and loss statement which reports companys earnings, receives close to of the... If you want to get a full essay, order it on our website: Orderessay

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