Desmarais Global Finance Research Centre (DGFRC) Seminar: Efraim Benmelech

Efraim Benmelech

Northwestern University

Debt and Assets

Date: Friday, November 21,2025
Time: 10:30-11:45 am
Location: Bronfman Bldg. (1001 Sherbrooke St. West), Room 245

All are cordially invited to attend.

Abstract:

We examine the importance of corporate assets in supporting debt. Prior studies typically see only secured debt as asset backed, while the rest is deemed cash flow based. This implies only a small fraction of US debt is asset backed. Yet because corporations often resist offering security explicitly to debt, much unsecured debt is implicitly asset backed. Moreover, we find that the degree to which unsecured debt is asset backed can change with a firm鈥檚 condition and the economic situation. Consequently, asset values can affect the quantum and price of borrowing, with effects accentuated in adverse economic conditions, as suggested by financial accelerator theories. Given that a corporation鈥檚 debt is typically supported by both expected cash flows and assets, with the relative support varying with time and situation, the industry practice of classifying debt as 鈥渁sset based鈥� or 鈥渃ash flow based鈥� is overly categorical, especially for long term corporate bonds.