Leverage over the Firm Life-Cycle, Firm Growth, and Aggregate Fluctuations

We create a novel dataset by merging the Census Bureau’s Longitudinal Business Dynamics data with firm-level financial information from Moody’s-Orbis. We find that firm leverage varies over a firm’s life-cycle, acting as a binding constraint only in certain times. As a result, the impact of a financial shock on employment depends on where firm is in its life-cycle at the onset of the shock. While highly leveraged small firms accounted for 3% of total U.S. employment, their employment response contributed up to 5% of excess job losses during Great Recession.