References (42)



Secured Debt and Corporate Performance:Evidence from REITs

Brent W. Ambrose

Pennsylvania State University

Shaun A. Bond

University of Cincinnati

Joseph T. L. Ooi

National University of Singapore - Department of Real Estate

January 28, 2010

A number of competing theories have developed regarding the use of secured debt by firms. In adverse selection models, borrowers use collateral to signal quality, whilst moral hazard models assume that the use of collateral improves the incentives for borrowers to work hard to repay debt. In this paper, we empirically test these two competing theories. Specifically, we answer the following question: Does the use of secured debt result in a performance difference between firms that employ a higher proportion of secured debt versus firms that utilize unsecured debt? We find robust evidence that an increase in the use of secured debt by REITs is associated with positive excess returns in the following quarter. In addition, we observe that small REITs with high leverage are more likely to increase their secured debt ratio. Taken together, the results suggest that moral hazard models of collateral are more relevant in explaining the positive firm utilization of secured debt and future stock performance.

Number of Pages in PDF File: 30

Keywords: REITs, Commercial Real Estate, Secured Debt, Performance

JEL Classification: R33, G32

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Date posted: January 29, 2010  

Suggested Citation

Ambrose, Brent W. and Bond, Shaun A. and Ooi, Joseph T. L., Secured Debt and Corporate Performance:Evidence from REITs (January 28, 2010). Available at SSRN: http://ssrn.com/abstract=1543830 or http://dx.doi.org/10.2139/ssrn.1543830

Contact Information

Brent W. Ambrose (Contact Author)
Pennsylvania State University ( email )
University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)
Shaun Alexander Bond
University of Cincinnati ( email )
College of Business Administration
Cincinnati, OH 45221-0195
United States
Joseph T. L. Ooi
National University of Singapore - Department of Real Estate ( email )
Bukit Timah Road 469 G
Singapore, 117591
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