Leverage Over the Firm Life Cycle, Firm Growth, and Aggregate Fluctuations

55 Pages Posted: 27 Nov 2019

See all articles by Emin Dinlersoz

Emin Dinlersoz

Center for Economic Studies - US Census Bureau

Ṣebnem Kalemli-Özcan

University of Maryland

Henry Hyatt

U.S. Census Bureau

Veronika Penciakova

Federal Reserve Bank of Atlanta

Date Written: 2019-11-01

Abstract

We study the leverage of U.S. firms over their life cycles and the connection between firm leverage, firm growth, and aggregate shocks. We construct a new dataset that combines private and public firms' balance sheets with firm-level data from U.S. Census Bureau's Longitudinal Business Database for the period 2005—12. Public and private firms exhibit different leverage dynamics over their life cycles. Firm age and size are systematically related to leverage for private firms but not for public firms. We show that private firms, but not public ones, deleveraged during the Great Recession and that this deleveraging is associated with a reduction in firm revenue and employment growth. Exploiting sectoral variation, we find that the leverage dynamics of firms is also relevant for aggregate fluctuations.

Keywords: leverage, firm dynamics, firm growth, firm life-cycle, financial constraints, borrowing limits, short-term debt, aggregate shocks

JEL Classification: E23, G32

Suggested Citation

Dinlersoz, Emin and Kalemli-Özcan, Ṣebnem and Hyatt, Henry and Penciakova, Veronika, Leverage Over the Firm Life Cycle, Firm Growth, and Aggregate Fluctuations (2019-11-01). FRB Atlanta Working Paper No. 2019-18. Available at SSRN: https://ssrn.com/abstract=3492473 or http://dx.doi.org/10.29338/wp2019-18

Emin Dinlersoz (Contact Author)

Center for Economic Studies - US Census Bureau ( email )

4600 Silver Hill Road
Washington, DC 20233
United States

Ṣebnem Kalemli-Özcan

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Henry Hyatt

U.S. Census Bureau

4600 Silver Hill Road
D.C., WA 20233
United States

Veronika Penciakova

Federal Reserve Bank of Atlanta ( email )

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