Priority spreading refers to the practice of firms increasing their reliance on secured and subordinated debt and reducing their reliance on senior debt as their credit quality deteriorates. We argue that priority spreading occurs, in part, because security provides creditors with greater...

Prior research finds a weak relation between cash-flow volatility and leverage. Using a novel measure of cash-flow volatility, we find that volatility matters more for firms that are financially constrained. Constrained firms issue debt when volatility is low, but have trouble deleveraging in...