Most discussions of corporate capital structure effectively assume that all debt
is the same. Yet debt differs by maturity, covenant restrictions, conversion rights,
call provisions, and priority. Here, we examine priority structure across a sample
of 4995 COMPUSTAT industrial firms from 1981 to 1991. We analyze the variation in
the use of capital leases, secured debt, ordinary debt, subordinated debt, and preferred
stock both as a fraction of the firm's market value and as a fraction of total fixed
claims. Our evidence provides consistent support for contracting cost hypotheses,
mixed support for tax hypotheses, and little support for the signaling hypothesis.