The Decline of Secured Debt
68 Pages Posted: 10 Jan 2020 Last revised: 15 Dec 2021
Date Written: December 31, 2019
The share of secured debt issued (as a fraction of total corporate debt) declined steadily in the United States over the twentieth century. This stems partly from financial development giving creditors greater confidence that high quality borrowers will respect their claims even if creditors do not obtain security up front. Consequently, such borrowers prefer retaining financial flexibility by not giving security up front. Instead, security is given contingently – when a firm approaches distress. This also explains why superimposed on the secular decline, the share of secured debt issued is countercyclical.
Keywords: Corporate Finance, Development of the American Economy, Economic Fluctuations and Growth, Law and Economics
JEL Classification: G32, K22, N12
Suggested Citation: Suggested Citation