Both authors are from the William E. Simon Graduate School of Business Administration, University of Rochester. We thank the Bradley Policy Research Center at the University of Rochester for financial support.
The Priority Structure of Corporate Liabilities
Article first published online: 30 APR 2012
1995 The American Finance Association
The Journal of Finance
Volume 50, Issue 3, pages 899–917, July 1995
How to Cite
BARCLAY, M. J. and SMITH, C. W. (1995), The Priority Structure of Corporate Liabilities. The Journal of Finance, 50: 899–917. doi: 10.1111/j.1540-6261.1995.tb04041.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
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, we examine priority structure across a sample of 4995 COMPUSTAT industrial firms from 1981 to 1991. We 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. Our evidence provides consistent support for contracting cost hypotheses, mixed support for tax hypotheses, and little support for the signaling hypothesis.