Dynamics of secured and unsecured debt over the business cycle

Luk, Paul; Zheng, Tianxiao

doi:10.1016/j.red.2021.01.004

Cited by 6 publications

(2 citation statements)

References 28 publications

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“…Although they do not focus on countercyclicality, Nini, Smith, and Sufi (2012) show that lenders demand collateral when a debtor violates covenants, and to the extent that covenants violations are countercyclical, this would create countercyclicality in the level of outstanding secured debt (as well as issuances if new secured debt is issued to replace the old unsecured debt). Luk and Zheng (2018) develop a macroeconomic model with debt heterogeneity that generates procyclical unsecured debt. Using firm-level data from Compustat for the period 1981 to 2017, they find that the amount of unsecured debt on a firm's balance sheet is positively correlated with GDP growth.…”

Section: Cyclicality In Issuance Of Secured Debtmentioning

confidence: 99%

The Decline of Secured Debt

Benmelech

Kumar

Rajan

2020

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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.

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Section: Cyclicality In Issuance Of Secured Debtmentioning

confidence: 99%

The Decline of Secured Debt

Benmelech

Kumar

Rajan

2020

View full text Add to dashboard Cite

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“…Although they do not focus on countercyclicality, Nini, Smith, and Sufi (2012) show that lenders demand collateral when a debtor violates covenants, and to the extent that covenants violations are countercyclical, this would create countercyclicality in the level of outstanding secured debt. Luk and Zheng (2022) develop a macroeconomic model with debt heterogeneity that generates procyclical unsecured debt. Using firm‐level data from Compustat for the 1981 to 2017 period, they find that the amount of unsecured debt on a firm's balance sheet is positively correlated with GDP growth (see also Azariadis, Kaas, and Wen (2016) and Bradley and Roberts (2015) using loan data from Dealscan).…”

Section: Cyclicality In Issuance Of Secured Debtmentioning

confidence: 99%

The Decline of Secured Debt

BENMELECH,

KUMAR,

RAJAN

2024

The Journal of Finance

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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 upfront. 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.This article is protected by copyright. All rights reserved

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