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We investigate how firms respond to strengthening of creditor rights by examining their financial decisions following a securitization reform in India. We find that the reform led to a reduction in secured debt, total debt, debt maturity, and asset growth, and an increase in liquidity hoarding by firms. Moreover, the effects are more pronounced for firms that have a higher proportion of tangible assets because these firms are more affected by the secured transactions law. These results suggest that strengthening of creditor rights introduces a liquidation bias and documents how firms alter their debt structures to contract around it.

Using a novel dataset that records individual debt issues on the balance sheets of public firms, we demonstrate that traditional capital structure studies that ignore debt heterogeneity miss substantial capital structure variation. Relative to high-credit-quality firms, lowcredit-quality firms are more likely to have a multi-tiered capital structure consisting of both secured bank debt with tight covenants and subordinated non-bank debt with loose covenants. We discuss the extent to which these findings are consistent with existing theoretical models of debt structure in which firms simultaneously use multiple debt types to reduce incentive conflicts.

We examine whether property market liquidity impacts the choice between secured and unsecured debt. A sample of real estate investment trusts (REITs) allows us to estimate the market liquidity of a REIT’s underlying assets and the debt secured by those assets (or unsecured). Using an instrumental variables approach, we find a positive relationship between a REIT’s property market liquidity and its use of unsecured debt relative to secured debt - when a REIT has greater exposure to more liquid underlying property markets, it is more likely to rely on unsecured debt. We investigate several aspects of this relationship including the debt level, issuances, and property loan-to-value ratio. In each case, we find support for our main result. Likewise, our results are robust to (a) using alternative instruments; (b) controlling for REITs’ unencumbered assets, as well as asset quality and redeployability; (c) controlling for credit market conditions; (d) accounting for real estate market conditions; (e) excluding firms that focus on residential real estate; and (f) adding stock market liquidity. Our study highlights the importance of property market liquidity in the debt structure of REITs. 

In U.S. data 1981–2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. In this article, we develop a tractable dynamic general equilibrium model in which unsecured firm credit arises from self-enforcing borrowing constraints, preventing an efficient capital allocation among heterogeneous firms. Unsecured credit rests on the value that borrowers attach to a good credit reputation which is a forward-looking variable. We argue that self-fulfilling beliefs over future credit conditions naturally generate endogenously persistent business-cycle dynamics. A dynamic complementarity between current and future borrowing limits permits uncorrelated sunspot shocks to unsecured debt to trigger persistent aggregate fluctuations in both secured and unsecured debt, factor productivity, and output. We show that these sunspot shocks are quantitatively important, accounting for around half of output volatility.

Debt is now a substantial aspect of family finances. Yet, research on how household debt is linked with child development has been limited. We use data from the National Longitudinal Survey of Youth 1979 cohort and hierarchical linear models to estimate associations of amounts and types of parental debt (home, education, auto, unsecured/ uncollateralized) with child socioemotional well-being. We find that unsecured debt is associated with growth in child behavior problems, whereas this is not the case for other forms of debt. Moreover, the association of unsecured debt with child behavior problems varies by child age and socioeconomic status, with younger children and children from less-advantaged families experiencing larger associations of unsecured debt with greater behavior problems.

In this study, I examine how young adult indebtedness has changed across three cohorts of young adults in the 1970s, 1980s, and 2000s. I pool data from four National Longitudinal Surveys of Youth cohorts—the NLS-M 1966, NLS-W 1968, NLSY 1979, and NLSY 1997. I have three key findings. First, debt burdens (debt relative to economic resources) have increased substantially across the three cohorts of study. Despite the fact that the most recent cohort of young adults are earlier along in their debt accrual career and have yet to hit many of the major adult milestones that often lead to debt, they are burdened with more debt than previous cohorts of young adults who achieved these milestones earlier. Second, young adult debt portfolios have shifted towards noncollateralized (unsecured) and student loan debt over time, the latter replacing home mortgage debt as the primary form of wealth-building debt among young adults. Third, cohort changes in debt have occurred unequally across social class lines. Young adults from lower social class backgrounds have disproportionately taken on more unsecured debt over time, relative to their more advantaged counterparts. The growth in debt burden across cohorts, however, has been most pronounced among college-educated young adults.

Nearly 40 percent of Americans approaching retirement felt heavily indebted. Understanding the role of secured and unsecured debt in retirement planning becomes an urgent concern for researchers and policymakers alike. Using data from the 2015 National Financial Capability Study (NFCS), the current study identified secured debt (mortgage and auto loan) and unsecured debt (medical debt and credit card debt) among a national sample of pre-retirees aged 51–61 years. Logit regression models were estimated to examine and compare each debt’s relationship retirement planning among pre-retirees. We found a relatively large portion of the pre-retiree sample approached retirement in debt, and having debt was negatively associated with retirement planning. We also found that secured debt does not seem to facilitate retirement planning, and unsecured debt had a strong negative association with retirement planning. Our findings highlight differential impact that debt from different sources can have on retirement security, calling for closer examination on the role of debt in retirement security across income groups and those without retirement plans. Findings of this study yield policy implications on access to retirement accounts and financial education provision towards financial health and solvency of older Americans.

The reported study advances psychological theory of well-being by offering deeper insight into the factors underlying financial well-being (FWB) in particular. An empirical investigation conducted into the determinants of FWB for two population groups, young workers and families with young children in the UK. Their financial decisions have important consequences for their households. A substantial internet survey of 654 people was conducted, which identified the most significant drivers of FWB or satisfaction, which is analogous to the measurement of subjective well-being in the domain of healthcare. The most significant finding from the regression is the significance for both groups of having control over their finances; control is even more important than the amount of available money for this population. A conclusion of the research is that the FWB would be increased if individuals could experience a greater sense of overall control of their money. In particular, financial institutions could provide products and processes to improve the FWB of their customers. There are also potential policy implications from the benefits of lower unsecured debt and increased savings to mitigate unexpected life events.

PurposeThis paper aims to investigate the effect of labour market conditions and monetary policy on households' attitude towards debt in the Australian context.Design/methodology/approachIn doing so, household debt is categorised into housing, and consumer debt and the relationship is empirically tested through the use of a vector error correction model.FindingsConsumer debt is found to be highly dependent on consumption with employment income and unemployment having a statistically insignificant effect, whilst monetary policy showing an inverse relation to consumer debt. The findings suggest that household consumption appears to be the primary determinant for consumer debt, which then behaves as a wage substitute. In terms of housing debt, income and monetary policy positively affect households' decisions with consumption and unemployment having a negative impact on the level of housing debt. The empirical results suggest that housing debt behaves as a proxy for household investment.Originality/valueThis paper empirically investigates the impact of selected macroeconomic variables on housing and personal debt separately. The findings suggest that monetary policy and labour market conditions have different impacts on the two separate debt types.

Collateral availability determines secured debt, while creditworthiness determines unsecured debt. Both are relevant for the debt structure. Regardless of the benefits that pledging collateral may offer, firms substitute away from secured debt as financial constraints relax. An increase in the share of unsecured debt leads to an increase in investment. A higher investment and the preference for unsecured debt can be explained by firms’ desire to minimize financing costs, spreads on unsecured debt are on average lower. This novel evidence complements existing literature on the collateral channel.