Debt Capacity of Real Estate Collateral
28 Pages Posted: 28 Aug 2014
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Debt Capacity of Real Estate Collateral
Date Written: Fall 2014
Abstract
We study whether real estate assets have a greater positive influence on firm leverage than other tangible assets. Using a large sample of COMPUSTAT firms, we find a significant positive relation between tangibility and leverage in general, and the relation is strongest for real estate collateral. Furthermore, we find that the relation holds only for creditâconstrained firms, i.e., those likely to highly value the additional borrowing capacity of real estate. Our results imply that knowing the composition of a firm's tangible assets is important in understanding its leverage. Our findings could help explain why real estate investment trusts are relatively highly leveraged, even though debt offers them no tax benefit.
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Joseph Golec
University of Connecticut - Department of Finance ( email )
School of Business
2100 Hillside Road
Storrs, CT 06269
United States
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Debt Capacity of Real Estate Collateral
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