Low debt puzzle determinants: evidence from Brazil

Purpose This study aims to investigate the determinants of zero or near-zero leverage among Brazilian non-financial firms from 2002 to 2024. It emphasizes how access to government-subsidized credit relates to capital structure decisions in an emerging market context. Design/methodology/approach The analysis combines two empirical strategies. First, binary logit models identify firm-specific and sectoral characteristics associated with low leverage. Second, hierarchical ordered multinomial logit models classify firms based on leverage and access to subsidized credit, enabling a deeper understanding of how structural and institutional factors interact. Findings The results show that access to subsidized credit is associated with firms’ higher propensity to borrow. However, a substantial share of firms maintains conservative capital structures regardless of the availability of such funding. Research limitations/implications These findings stress the importance of incorporating institutional variables into capital structure theories, particularly in emerging economies. Practical implications Public policy design should account for how subsidized credit is related to leverage and financial risk, especially where private markets remain underdeveloped. Social implications Understanding conservative financial behavior offers insights into financial regulation, credit access policies and strategies to foster investment while containing excessive risk. Originality/value This study provides novel evidence from Brazil showing how structural firm features and institutional incentives jointly relate to conservative leverage decisions in emerging economies.