The Secular Decline in Private Firm Leverage

48 Pages Posted: 16 May 2022 Last revised: 25 Jul 2022

See all articles by Christine Dobridge

Christine Dobridge

Board of Governors of the Federal Reserve System

Erik Gilje

University of Pennsylvania - The Wharton School

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA)

Date Written: May 2022

Abstract

Using firm-level administrative tax data on the 43% of business liabilities in the United States tied to privately held firms, we document dramatic reductions in leverage since the Great Recession. Leverage for the average private firm fell fifteen percent between 2004 and 2018. In contrast, leverage among public firms rose during this period. The decline in leverage among private firms is inconsistent with theories that suggest firm leverage tracks pro-cyclical credit market conditions. Younger and smaller private firms see especially large declines in leverage, and we find that reduced leverage among private firms is correlated with lower investment. Our findings have important implications for theories on how firm leverage and investment relate to economic fluctuations.

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Suggested Citation

Dobridge, Christine and Gilje, Erik and Whitten, Andrew, The Secular Decline in Private Firm Leverage (May 2022). NBER Working Paper No. w30034, Available at SSRN: https://ssrn.com/abstract=4110737

Christine Dobridge (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
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(202) 912-4341 (Phone)

Erik Gilje

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 20220
United States

HOME PAGE: http://andrewwhitten.com

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