A Century of Capital Structure: The Leveraging of Corporate America

We document a substantial shift in capital structures of US corporations over the past century. Unregulated industries increased their aggregate leverage ratio from 11% in 1945 to 35% in 1970. An increase occurred in all unregulated industries and affected firms of all sizes. The median firm in 1946 had no debt in its capital structure, but by 1970 had a leverage ratio in excess of 30%. By contrast, the aggregate leverage ratio of nonfinancial, regulated corporations was nearly constant. Our analysis points to several potential explanations for the observed patterns including: competition for investors’ funds, variation in expected default costs, and changes to the tax code.