Working Paper: NBER ID: w25226
Authors: Emin Dinlersoz; Sebnem Kalemli-Ozcan; Henry Hyatt; Veronika Penciakova
Abstract: 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 (LBD) for the period 2005–2012. 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.
Keywords: leverage; firm growth; aggregate shocks; private firms; public firms
JEL Codes: E23; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Shock (Great Recession) (F65) | Reduced Leverage (G32) |
| Reduced Leverage (G32) | Decreased Revenue and Employment Growth (O49) |
| Firm Age (L26) | Leverage (G32) |
| Small Private Firms (L26) | Credit Constraints During Crises (F65) |
| Credit Constraints During Crises (F65) | Negative Impact on Leverage and Growth (F65) |
| Leverage (G32) | Growth (Private Firms) Before Crisis (O16) |
| Leverage Weakens (G32) | Growth (Private Firms) During Crisis (H12) |
| Sectoral Leverage (L52) | Sector Size and Growth Pre-Crisis (N11) |
| Sector Size and Growth Pre-Crisis (N11) | Sectoral Leverage (L52) |
| Sectoral Leverage (L52) | Negative Impact During Crisis (H12) |