A Longitudinal Study of Borrowing by Large American Corporations

Mizruchi's research for this paper was supported by a National Science Foundation Presidential Young Investigator Award (Grant #SES-8858669 and SES-9196148). Stearns was supported by the Russell Sage Foundation and the George A. and Eliza Gardner Howard Foundation. Both authors were supported by National Science Foundation research grant #SBR-9308443. The authors are grateful to Marshall W. Meyer and three anonymous ASO reviewers for their extensive comments on earlier drafts of the paper and to Linda J. Pike for her editorial suggestions. Please direct correspondence to Mark S. Mizruchi, Department of Sociology, University of Michigan, Ann Arbor, Ml, 48109-1382. Using models drawn from organizational theory and institutional economics, this paper examines the extent to which firms borrow money. We argue that corporate borrowing depends on four factors: the expected return on borrowing, the availability of internal funds, the strategic orientation of the chief executive officer, and the firm's board composition. We formulate four hypotheses, which we test with data on 22 large U.S. manufacturing firms from 1956 through 1983. Retained earnings, the expected return on borrowing, the presence of a representative of a financial institution on the firm's board of directors, and the presence of a CEO from a finance background are all associated with the level of borrowing. The findings suggest that both economic and organizational factors affect the extent to which firms borrow.-

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