Real Assets, Liquidation Value and Choice of Financing
47 Pages Posted: 8 Dec 2010
Date Written: July 1, 2010
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