Debt Capacity of Real Estate Collateral |
| |
| Authors: | Erasmo Giambona Joseph Golec Armin Schwienbacher |
| |
| Institution: | 1. Finance Group, University of Amsterdam, , Amsterdam, The Netherlands;2. Department of Finance, University of Connecticut, , Storrs, CT, 06269;3. Department of Finance, Univ. Lille Nord de France – SKEMA Business School, , Lille, France |
| |
| Abstract: | We study whether real estate assets have a greater positive influence on firm leverage than other tangible assets. Using a large sample of COMPUSTAT firms, we find a significant positive relation between tangibility and leverage in general, and the relation is strongest for real estate collateral. Furthermore, we find that the relation holds only for credit‐constrained firms, i.e., those likely to highly value the additional borrowing capacity of real estate. Our results imply that knowing the composition of a firm's tangible assets is important in understanding its leverage. Our findings could help explain why real estate investment trusts are relatively highly leveraged, even though debt offers them no tax benefit. |
| |
| Keywords: | |
|
|
