Recent trends in corporate leverage

Many analysts have voiced concerns about the indebtedness of U.S. corporations during the last several years. These analysts believed that the debt buildup of the 1980s would leave firms in precarious financial condition if and when the next cyclical downturn arrived; higher debt burdens would prove difficult to manage when revenues and cash flows fell in a recession. Some of these concerns have indeed been borne out in the most recent cycle, as many firms found their debt servicing needs remained high while funds available to meet those needs tapered off. Analysts have also argued that firms have recently taken great strides in reducing their debt burdens and "restructuring their balance sheets." In this article, I examine some aggregate data for the U.S. nonfinancial corporate sector and consider several aspects of the changes in corporate debt burdens in recent years. In particular, after presenting some evidence of the debt buildup of the 1980s and its subsequent slowdown, I focus on the balance sheet restructuring that began in 1990 and continues to the present.