Emin Dinlersoz, Sebnem Kalemli-Ozcan, Henry Hyatt, and Veronika Penciakova
Working Paper 2019-18
September 2019

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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 for the period 2005–12. 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.

JEL classification: E23, G32

Key words: leverage, firm dynamics, firm growth, firm life-cycle, financial constraints, borrowing limits, short-term debt, aggregate shocks


All results have been reviewed to ensure that no confidential information is disclosed. The authors thank the participants of the National Bureau of Economic Research's Capital Markets group at the 2018 Summer Institute for comments. The views expressed here are those of the authors and not necessarily those of the U.S. Census Bureau, the Federal Reserve Bank of Atlanta, or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Emin Dinlersoz, Center for Economic Studies, U.S. Census Bureau, 4600 Silver Hill Road, Suitland, MD 20746, emin.m.dinlersoz@census.gov; Sebnem Kalemli-Ozcan, University of Maryland, CEPR, and NBER, Department of Economics, 4118D Tydings Hall, College Park, MD, 20742, kalemli@econ.umd.edu; Henry Hyatt, Center for Economic Studies, U.S. Census Bureau, 4600 Silver Hill Road, Suitland, MD 20746, henry.r.hyatt@census.gov; or Veronika Penciakova, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, veronika.penciakova@atl.frb.org.
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