The New Strategy of High-Tech Companies – Hidden Sources of Growth

Abstract

The recent increase in the share of zero-leverage firms is most pronounced in the Software and Services, Hardware Equipment, and Pharmaceutical and Biotechnical industries. The reasons for these industries’ conservative debt policies are not fully disclosed. How companies in technological sectors manage to perform well attracting no debt and loosing debt tax shield benefits is a mystery. This study aims to determine why high-tech firms are less likely to have debt in the capital structure. On the basis of a sample of US-based firms from the RUSSELL 3000 index for 12 years, we show the factors leading to a zero-debt structure. After dividing the sample into high-tech and non-high-tech subsamples, we demonstrate the gap between zero-debt motives for technological and traditional sectors. We show that the common determinants of corporate structure cannot fully explain why high-tech firms choose a zero-debt policy. Testing the possible motives of debt financing avoidance, we find that high-tech firms are more financially constrained than non-high-tech firms. We further show that unconstrained high-tech firms may avoid debt to maintain their financial flexibility. On top of that, managerial entrenchment also adds to the zero-leverage choice of high-tech companies. The study results are helpful for executive management teams and investors since they shed light on the specific style of financing choice for technological firms.

Voluntary Delisting of Russian Companies at Different Stages of Corporate Life Cycle

“…The study of H. Agyei-Boapeah et al [3] shows that firms with a large amount of intangible assets are more likely to delist -the author justifies this by the industry specifics of IT companies, which are believed to prefer retained earnings as the main source of capital for development. As shown in the study by M. Kokoreva et al [22], such policies can be caused, among other, by additional financing limitations set for these firms and by the motive of management entrenchment. As these factors are based on the nature of high-tech firms' governance and asset structure (and ergo applies not only to debt financing), we assume that it can also be a sufficient factor in causing them to delist.…”