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Market Value of REIT Liquidity |
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| Authors: | Matthew D Hill G Wayne Kelly William G Hardin III |
| Institution: | 1. Department of Finance, School of Business Administration, University of Mississippi, University, MS, 38677, USA 2. Department of Finance and Economics, College of Business and Industry, Mississippi State University, Strackville, MS, 39762, USA 3. Department of Finance, College of Business Administration, Real Estate and Knight Ridder Center Research Fellow, Florida International University, 11200 SW 8th Street, Miami, FL, 33199-0001, USA |
| Abstract: | We examine the relation between firm value and liquidity among REITs. Results show shareholders benefit from both cash and unused credit line capacity. The market values an additional dollar of cash at a premium and, as theory predicts, unused credit lines are significantly less valued than cash. Evidence suggests an increase in the market value of liquidity during the recent financial crisis. We also find that financial characteristics quantifying financial constraint influence the value of REIT financial flexibility. Most notably, the value of cash decreases with remaining credit line capacity. Although prior studies argue that cash and credit lines are substitutes, this is one of the first tests of whether the market prices this substitutability. |
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