This study analyzes whether corporate financing policies of the US industrial firms have depended on borrowing costs during the last forty years. The results show that the impact is either zero or slightly negative. Even in the latter case, the results are economically insignificant. Overall, our findings suggest that firms do not adjust their capital structures based on interest rates, except when market participants expect that real gross domestic product growth will be negative. Using a dynamic partial equilibrium model, we show that relatively high leverage adjustment costs are able to explain the weak negative relation between interest rates and a firm’s leverage. In general, our results are also consistent with the view that firms target debt-to-asset ratio rather than debt level.