Debt and Assets

Efraim Benmelech, Nitish Kumar and Raghuram Rajan

No 34008, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Prior studies imply that a majority of US corporate debt by value is cash-flow based and only a small fraction of US debt is asset backed. Because corporations often prefer keeping assets unencumbered until creditors insist on security, much unsecured cash flow-based debt is also implicitly asset backed. Moreover, the degree of asset backing varies with a firm’s condition and the economic environment. Consequently, asset values affect both the amount and price of unsecured borrowing, with effects amplified in adverse conditions – consistent with financial accelerator theories. Because all corporate debt is supported both by future cash flows and asset values, with the relative support shifting with firm-specific and economy-wide conditions, the industry practice of classifying debt as “asset-based” or “cash flow-based” is overly categorical, especially for long term corporate bonds.

JEL-codes: E50 G3 G33 (search for similar items in EconPapers)
Date: 2025-07
New Economics Papers: this item is included in nep-fdg and nep-ifn
Note: AP CF EFG ME
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34008.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
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:nbr:nberwo:34008

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34008
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().