Financing decisions in private and public firms

This dissertation explores the differences in informational asymmetries between private and public firms in the U.S. to study the role of collateral in firms’ financial policies. The first essay examines public and private firms’ leverage choices. I find that private firms’ leverage is about 3.8 times higher than that of public firms and that asset tangibility has a much larger impact on the leverage decisions of private firms than it does on those of public firms. Moreover, during the recent financial crisis, private firms increased both their leverage and their net leverage compared to public firms. The second essay studies the use of trade credit in public and private firms. Here I examine how tangible assets affect the use of trade credit. I also analyze how their holdings of trade credit and bank debt change during a credit supply shock. I find that private firms’ with higher levels of tangible assets rely less on trade credit and that they more likely to substitute trade credit for bank debt. The third essay compares and characterizes debt maturity and debt structure choices in public and private firms. I show that tangible assets help private firms to increase the maturity of their liabilities and help private firms to specialize in the type of debt they employ. I also analyze how their debt maturity structure and debt composition change during a credit supply shock. I find that the maturity of their liabilities shortened during the crisis. Moreover, private firms experienced an increase in the long-term debt due after one year compared to public firms. Overall, the evidence suggests that under asymmetric information, asset tangibility is the key determinant of private firms’ ability to access debt markets, to rely less on trade credit, and to extend the maturity of their liabilities, especially during bad times.