Journal of Finance Vol. 79 No. 1 2024

The Decline of Secured Debt

Efraim Benmelech^1,2,3,4,5,6; Nitish Kumar^1,2,3,4,5,6; Raghuram G. Rajan¹

¹ Northwestern University · ² Georgia Institute of Technology · ³ Stockholm School of Economics · ⁴ Kellogg's (Canada) · ⁵ University of Florida · ⁶ University of Chicago

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 upfront. 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.

DOI

10.1111/jofi.13308

Volume

79

Issue

1

Pages

35-93

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓