The Decline of Secured Debt

67 Pages Posted: 10 Jan 2020 Last revised: 30 Apr 2021

See all articles by Efraim Benmelech

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Nitish Kumar

University of Florida

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 31, 2019

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.

Keywords: Corporate Finance, Development of the American Economy, Economic Fluctuations and Growth, Law and Economics

JEL Classification: G32, K22, N12

Suggested Citation

Benmelech, Efraim and Kumar, Nitish and Rajan, Raghuram G., The Decline of Secured Debt (December 31, 2019). Available at SSRN: https://ssrn.com/abstract=3512974 or http://dx.doi.org/10.2139/ssrn.3512974

Efraim Benmelech

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nitish Kumar

University of Florida ( email )

Gainesville, FL 32611
United States

Raghuram G. Rajan (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)

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