The Decline of Secured Debt

68 Pages Posted: 13 Jan 2020 Last revised: 14 Oct 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)

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Date Written: January 2020

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

Benmelech, Efraim and Kumar, Nitish and Rajan, Raghuram G., The Decline of Secured Debt (January 2020). Available at SSRN: https://ssrn.com/abstract=3518250

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

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Nitish Kumar

University of Florida ( email )

Gainesville, FL 32611
United States

Raghuram G. Rajan

University of Chicago - Booth School of Business ( email )

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International Monetary Fund (IMF) ( email )

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National Bureau of Economic Research (NBER)

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