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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Nov 20, 2023

The Secular Decline in Private Firm Leverage


Using firm-level administrative tax data, we document dramatic reductions in private leverage since the Global Financial Crisis, while leverage among public firms rose during this period. Changing firm characteristics are unable to account for this pattern. Younger and smaller private firms experience large declines in leverage. Reduced leverage among private firms is correlated with lower investment. The decline in private firm leverage and investment is strongly related to plausibly exogenous increases in local area bank capital requirements. Our findings suggest that banks’ credit supply plays a prominent role in explaining the leverage pattern of private firms.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.  

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