Leverage over the Life Cycle and Implications for Firm Growth and Shock Responsiveness
We study the leverage of U.S. firms over their life-cycles, and the connection between firm leverage, firm growth, and aggregate shocks. We construct a new dataset that combines private and public firms’ balance sheets with firm-level data from U.S. Census Bureau’s Longitudinal Business Database (LBD) for the period 2005–2012. Public and private firms exhibit different leverage dynamics over their life-cycles. Firm age and size are systematically related to leverage for private firms, but not for public firms. We show that private firms, but not public ones, deleveraged during the Great Recession, and that this deleveraging is associated with a reduction in firm revenue and employment growth. Exploiting sectoral variation, we find that the leverage dynamics of firms is also relevant for aggregate fluctuations.
Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau or the National Bureau of Economic Research. All results have been reviewed to ensure that no confidential information is disclosed. We thank the participants of NBER Capital Markets group at the 2018 Summer Institute for comments.
- Private firms increase their leverage as they grow, relying particularly on short-term debt, while many public firms deleverage as...