REIT Performance and Lines of Credit
Posted: 22 Jun 2011
Date Written: June 20, 2011
Using a sample of equity REITs traded on major U.S. exchanges between 1990 and 2009, we investigate the relationship between REIT line of credit usage and subsequent firm profitability. Our results, which are robust across multiple accounting measures of firm operating performance, indicate enhanced liquidity is strongly associated with better firm performance. Furthermore, the benefits of enhanced liquidity appear to be strongest for those firms identified as being capital constrained. These results also provide insight into, and a rational economic justification for, the previously documented positive borrower wealth effects associated with bank loan announcements.
Keywords: Lines of Credit, REIT, Operating Performance, FFO
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