Corporate Deleveraging and Financial Flexibility

Harry DeAngelo, Andrei Goncalves and René Stulz
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Harry DeAngelo: University of Southern California
Andrei Goncalves: Ohio State University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Most firms deleverage from their historical peak market-leverage (ML) ratios to near-zero ML, while also markedly increasing cash balances to high levels. Among 4,476 nonfinancial firms with five or more years of post-peak data, median ML is 0.543 at the peak and 0.026 at the later trough, with a six-year median time from peak to trough and with debt repayment and earnings retention accounting for 93.7% of the median peak-to-trough decline in ML. The findings support theories in which firms deleverage to restore ample financial flexibility and are difficult to reconcile with most firms having materially positive leverage targets.

JEL-codes: G31 G33 G35 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (6)

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Journal Article: Corporate Deleveraging and Financial Flexibility (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2017-28

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