Real Estate Prices and Firm Capital Structure

Posted: 1 Mar 2013 Last revised: 20 May 2014

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Cornell SC Johnson College of Business

Date Written: February 14, 2014


This paper examines the impact of real estate prices on firm capital structure decisions. For a typical US listed company, a one standard deviation increase in predicted value of firm pledgeable collateral translates into a 3 percentage points increase in firm market leverage ratio. The identification strategy employs a triple interaction of MSA level land supply elasticity, real estate prices and a measure of a firm's real estate holdings as an exogenous source of variation in firm collateral values. Firms significantly change their debt structure: they increase their bank but also arm's length financing and they decrease more expensive types of debt in response to collateral value appreciation. These results indicate the importance of collateral values in mitigating potential informational imperfections.

Keywords: Collateral, debt capacity, capital structure, real estate prices

JEL Classification: G30, G32

Suggested Citation

Cvijanovic, Dragana, Real Estate Prices and Firm Capital Structure (February 14, 2014). UNC Kenan-Flagler Research Paper No. 2013-13, Available at SSRN: or

Dragana Cvijanovic (Contact Author)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

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