The zero-leverage phenomenon: A bivariate probit with partial observability approach

The empirical literature on zero leverage investigates why some firms are debt-free using standard logit and probit specifications. However, such models are not suitable to provide a direct answer to the main research question that arises in this context: is zero leverage a financial decision of the firm or an imposition raised by creditors? This paper examines the factors that affect the demand for debt and the supply of debt using bivariate...