Real Assets, Liquidation Value and Choice of Financing

Liu, Peng; Liu, Crocker H.; Zhang, Zhipeng

doi:10.2139/ssrn.1721844

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Real Assets, Liquidation Value and Choice of Financing

47 Pages Posted: 8 Dec 2010

See all articles by Peng Liu

Peng Liu

Cornell University; Cornell SC Johnson College of Business

Zhipeng Zhang

Blackstone Group LLC

There are 2 versions of this paper

Date Written: July 1, 2010

Abstract

We use real estate firms to examine how asset liquidation values influence a firm’s financing choices, since the productivity and quality of each asset is observable and potential measures of an asset’s liquidation value are easier to ascertain ex-ante. We show that compared to firms that issue equity, firms that issue debt have higher asset quality. The effect of their expected asset liquidation value is significant, even after we control for other factors that influence financing decisions. For firms whose assets’ quality is not easily observable, we find that firms’ financing choices depend heavily on conditions in the overall real asset market.

Keywords: Capital Structure, Financing Choice, Liquidation Value, Real Estate

JEL Classification: G3, R0, G33

Suggested Citation: Suggested Citation

Liu, Peng and Liu, Crocker H. and Zhang, Zhipeng, Real Assets, Liquidation Value and Choice of Financing (July 1, 2010). Available at SSRN: https://ssrn.com/abstract=1721844 or http://dx.doi.org/10.2139/ssrn.1721844