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The Leveraging of Corporate America: A Long‐Run Perspective on Changes in Capital Structure

Publication ,  Journal Article
Graham, JR; Leary, MT; Roberts, MR
Published in: Journal of Applied Corporate Finance
December 2016

In a study published recently in the , the authors of this article documented a substantial increase in the use of debt financing by U.S. companies over the past century. From 1920 until the mid‐1940s, the aggregate leverage of unregulated U.S. companies was low and stable, with the average debt‐to‐capital ratio staying within the narrow range of 10% to 15%. But during the next 25 years, the use of debt by U.S. companies more than doubled, rising to 35% of total capital. And since 1970, aggregate leverage has remained above 35%, peaking at 47% in 1992. Moreover, this pattern has been observed in companies of all sizes and operating in all unregulated sectors.Changes in the characteristics of U.S. public companies during this period provide little help in explaining the increase in corporate leverage. For example, the displacement of tangible by intangible assets in many sectors of the U.S. economy during the past 50 years would have led most economists to predict, holding all other things equal, a reduction rather than an increase in aggregate corporate leverage. Instead, according to the authors' findings, the main contributors to the increases in U.S. corporate leverage since the 1940s have been changes, including increases in corporate income tax rates, the development of financial markets and intermediaries, and the reduction in government borrowing in the decades following World War II. The authors' analysis also identifies these last two changes—the development of financial markets, including the rise of institutional investors and shareholder activism, and the post‐War reduction in government debt—as having played the biggest roles in the leveraging of corporate America.

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Published In

Journal of Applied Corporate Finance

DOI

EISSN

1745-6622

ISSN

1078-1196

Publication Date

December 2016

Volume

28

Issue

4

Start / End Page

29 / 37

Publisher

Wiley

Related Subject Headings

  • 3502 Banking, finance and investment
  • 3501 Accounting, auditing and accountability
  • 1502 Banking, Finance and Investment
  • 1501 Accounting, Auditing and Accountability
 

Citation

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Graham, J. R., Leary, M. T., & Roberts, M. R. (2016). The Leveraging of Corporate America: A Long‐Run Perspective on Changes in Capital Structure. Journal of Applied Corporate Finance, 28(4), 29–37. https://doi.org/10.1111/jacf.12208
Graham, John R., Mark T. Leary, and Michael R. Roberts. “The Leveraging of Corporate America: A Long‐Run Perspective on Changes in Capital Structure.” Journal of Applied Corporate Finance 28, no. 4 (December 2016): 29–37. https://doi.org/10.1111/jacf.12208.
Graham JR, Leary MT, Roberts MR. The Leveraging of Corporate America: A Long‐Run Perspective on Changes in Capital Structure. Journal of Applied Corporate Finance. 2016 Dec;28(4):29–37.
Graham, John R., et al. “The Leveraging of Corporate America: A Long‐Run Perspective on Changes in Capital Structure.” Journal of Applied Corporate Finance, vol. 28, no. 4, Wiley, Dec. 2016, pp. 29–37. Crossref, doi:10.1111/jacf.12208.
Graham JR, Leary MT, Roberts MR. The Leveraging of Corporate America: A Long‐Run Perspective on Changes in Capital Structure. Journal of Applied Corporate Finance. Wiley; 2016 Dec;28(4):29–37.
Journal cover image

Published In

Journal of Applied Corporate Finance

DOI

EISSN

1745-6622

ISSN

1078-1196

Publication Date

December 2016

Volume

28

Issue

4

Start / End Page

29 / 37

Publisher

Wiley

Related Subject Headings

  • 3502 Banking, finance and investment
  • 3501 Accounting, auditing and accountability
  • 1502 Banking, Finance and Investment
  • 1501 Accounting, Auditing and Accountability