The Firm Size and Leverage Relationship and Its Implications for Entry and Concentration in a Low Interest Rate World

Satyajit Chatterjee () and Burcu Eyigungor
Additional contact information
Burcu Eyigungor: Federal Reserve Bank of Philadelphia

No 1041, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Larger firms (by sales or employment) have higher leverage. This pattern is explained using a model in which firms produce multiple varieties and borrow with the option to default against their future cash flow. A variety can die with a constant probability, implying that bigger firms (those with more varieties) have lower coefficient of variation of sales and higher leverage. A lower risk-free rate benefits bigger firms more as they are able to lever more and existing firms buy more of the new varieties arriving into the economy. This leads to lower startup rates and greater concentration of sales.

Date: 2019
New Economics Papers: this item is included in nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2019/paper_1041.pdf (application/pdf)

Related works:
Working Paper: The Firm Size and Leverage Relationship and Its Implications for Entry and Concentration in a Low Interest Rate World (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:1041

Access Statistics for this paper

More papers in 2019 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().