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The Decline of Secured Debt

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  • 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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    Cited by:

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    2. Amir Kermani & Yueran Ma, 2020. "Two Tales of Debt," NBER Working Papers 27641, National Bureau of Economic Research, Inc.
    3. Bernhardt, Dan & Koufopoulos, Kostas & Trigilia, Giulio, 2021. "The pitfalls of pledgeable cash flows : soft budget constraints, zombie lending and under-investment," The Warwick Economics Research Paper Series (TWERPS) 1327, University of Warwick, Department of Economics.
    4. Douglas W. Diamond & Yunzhi Hu & Raghuram G. Rajan, 2021. "Liquidity, Pledgeability, and the Nature of Lending," Working Papers 2021-09, Becker Friedman Institute for Research In Economics.
    5. Efraim Benmelech & Nitish Kumar & Raghuram Rajan, 2020. "Secured Credit Spreads," Working Papers 2020-14, Becker Friedman Institute for Research In Economics.
    6. Efraim Benmelech & Nitish Kumar & Raghuram Rajan, 2020. "Secured Credit Spreads and the Issuance of Secured Debt," NBER Working Papers 26799, National Bureau of Economic Research, Inc.

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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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