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The Decline of Secured Debt

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Listed:
  • Efraim Benmelech
  • Nitish Kumar
  • Raghuram Rajan
Abstract
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.

Suggested Citation

  • Efraim Benmelech & Nitish Kumar & Raghuram Rajan, 2020. "The Decline of Secured Debt," NBER Working Papers 26637, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26637
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    16. Song Ma & Joy Tianjiao Tong & Wei Wang, 2022. "Bankrupt Innovative Firms," Management Science, INFORMS, vol. 68(9), pages 6971-6992, September.
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

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