More Debt More Leverage?

61 Pages Posted: 20 Oct 2022 Last revised: 21 Nov 2022

See all articles by Antje Berndt

Antje Berndt

Australian National University, College of Business and Economics

Bruce D. Grundy

RSFAS Australian National University

Yue Wang

Australian National University (ANU)

Date Written: November 19, 2022

Abstract

If the primary purpose of raising debt levels was to finance growth opportunities, then higher debt levels would signal greater post-payout returns on assets but contain no information about firm leverage. Using annual data in real terms for more than 5,400 public US non-financial firms from 1973 to 2021, we reject this hypothesis by showing that the return channel accounts for less than half of the variation in debt levels, with the leverage channel accounting for the remainder. The link between greater debt growth and higher leverage is particularly pronounced during accommodative monetary policy regimes.

Keywords: Corporate debt levels, leverage, asset returns, payout yields, investment yields

JEL Classification: C5, E4, E6, G1, H6

Suggested Citation

Berndt, Antje and Grundy, Bruce D. and Wang, Yue, More Debt More Leverage? (November 19, 2022). Available at SSRN: https://ssrn.com/abstract=4249180 or http://dx.doi.org/10.2139/ssrn.4249180

Antje Berndt (Contact Author)

Australian National University, College of Business and Economics ( email )

Australian National University
Bldg 26C
Canberra, ACT 2601
Australia

HOME PAGE: http://https://cbe.anu.edu.au/about/staff-directory/professor-antje-berndt

Bruce D. Grundy

RSFAS Australian National University ( email )

Kingsley Street
Acton ACT
Australia
0431247108 (Phone)

Yue Wang

Australian National University (ANU) ( email )

RSFAS, College of Business and Economics
Building 26C Kingsley St.
Canberra, Acton 2601
Australia

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