A Century of Capital Structure: The Leveraging of Corporate America

We examine the determinants of aggregate corporate capital structure using a novel dataset of accounting and market information that spans most publicly traded firms over the last century. We show that the stability of nonfinancial aggregate leverage over this period reflects two opposing forces. First, regulated sectors, such as railroads, delevered and contracted in size. Second, unregulated sectors experienced a threefold increase in their debt-to-asset ratio from 8% in 1946 to 27% in 1970. This increase occurred in all unregulated sectors and was systemic, affecting firms of all sizes. The median firm in 1946 had no debt in its capital structure, but by 1970 had a debt-to-asset ratio in excess of 25%. Our analysis reveals that competition for investors’ funds between the public and private sectors played an important role in explaining the increase in debt usage. Taxes, economic uncertainty, and financial market development play less important roles in driving this secular increase in leverage.