Unexpected Inflation, Capital Structure and Real Risk-Adjusted Firm Performance

35 Pages Posted: 25 Aug 2014

See all articles by Jamie Alcock

Jamie Alcock

The University of Sydney Business School; Centre for International Finance and Regulation (CIFR)

Eva Steiner

Cornell SC Johnson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 25, 2014

Abstract

Managers can improve real risk-adjusted firm performance by matching nominal assets with nominal liabilities, thereby reducing the sensitivity of real risk-adjusted returns to unexpected inflation. The Net Asset Value (NAV) of US equity Real Estate Investment Trusts (REITs) serves as a good proxy for nominal assets and accordingly we use a sample of US REITs to test our hypothesis. We find that for the firms in our sample: (i) their real, risk-adjusted performance, and (ii) their inflation hedging qualities are inversely related to deviations from this "matching-nominals" argument. In addition to providing managers with a vehicle to maximise real, risk-adjusted performance, our findings also provide investors with the tools to infer inflation-hedging qualities of equity investments.

Keywords: REITs, leverage, inflation hedging, real risk-adjusted performance

JEL Classification: G00, G31, R30

Suggested Citation

Alcock, Jamie and Steiner, Eva Maria, Unexpected Inflation, Capital Structure and Real Risk-Adjusted Firm Performance (August 25, 2014). Available at SSRN: https://ssrn.com/abstract=2486419 or http://dx.doi.org/10.2139/ssrn.2486419

Jamie Alcock (Contact Author)

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Eva Maria Steiner

Cornell SC Johnson College of Business ( email )

465B Statler Hall
Ithaca, NY 14853
United States

HOME PAGE: http://https://sha.cornell.edu/faculty-research/faculty/ems457/

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