NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Leverage over the Life Cycle and Implications for Firm Growth and Shock Responsiveness

Emin Dinlersoz, Sebnem Kalemli-Ozcan, Henry Hyatt, Veronika Penciakova

NBER Working Paper No. 25226
Issued in November 2018, Revised in September 2019
NBER Program(s):Corporate Finance Program, Economic Fluctuations and Growth Program

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.

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Document Object Identifier (DOI): 10.3386/w25226

 
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