Declining Collateral and Increasing Low Leverage Firms

19 Pages Posted: 15 Sep 2016

See all articles by Mark Gruskin

Mark Gruskin

Pennsylvania State University

Date Written: September 14, 2016

Abstract

I investigate the relationship between declining collateral and increasing low leverage firms by separating it from a reduced propensity to finance with debt. I find that the annual decline in the collateral-to-asset ratio is approximately 1.0% between 1977 and 2010, and that firms with the least collateral have the highest fraction of low leverage firms and the largest proportional increase over time. There is also an inverse relationship between collateral and the deficiency to be highly levered, and the magnitude of the relationship varies with a firm’s asset structure. These results suggest that declining collateral provides an important partial explanation for the increasing fraction of low leverage firms.

Suggested Citation

Gruskin, Mark, Declining Collateral and Increasing Low Leverage Firms (September 14, 2016). Journal of Applied Finance (Formerly Financial Practice and Education), Vol. 25, No. 2, 2015, Available at SSRN: https://ssrn.com/abstract=2838990

Mark Gruskin (Contact Author)

Pennsylvania State University

University Park
State College, PA 16802
United States

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