The Priority Structure of Corporate Liabilities

Michael J Barclay and Smith, Clifford W,

Journal of Finance, 1995, vol. 50, issue 3, 899-917

Abstract: Most discussions of corporate capital structure effectively assume that all debt is the same. Yet debt differs by maturity, covenant restrictions, conversion rights, call provisions, and priority. Here, the authors examine priority structure across a sample of 4995 COMPUSTAT industrial firms from 1981 to 1991. They analyze the variation in the use of capital leases, secured debt, ordinary debt, subordinated debt, and preferred stock both as a fraction of the firm's market value and as a fraction of total fixed claims. The authors' evidence provides consistent support for contracting cost hypotheses, mixed support for tax hypotheses, and little support for the signaling hypothesis. Copyright 1995 by American Finance Association.

Date: 1995
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