Real Assets, Liquidation Value and Choice of Financing

Real Estate Economics, Forthcoming

Posted: 20 Mar 2015

See all articles by Crocker Herbert Liu

Crocker Herbert Liu

Cornell University - School of Hotel Administration

Peng Liu

Cornell University - S.C. Johnson College of Business - School of Hotel Administration

Zhipeng Zhang

Boston College

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Date Written: March 15, 2015

Abstract

We use real estate investment trusts 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: Financing, REITs, Tenant Quality, Firesale Discount, Industry Diversification, Liquidation Value, Cap Rate, Capital Structure

Suggested Citation

Liu, Crocker Herbert and Liu, Peng and Zhang, Zhipeng, Real Assets, Liquidation Value and Choice of Financing (March 15, 2015). Real Estate Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2580559

Crocker Herbert Liu (Contact Author)

Cornell University - School of Hotel Administration ( email )

435B Statler Hall
Ithaca, NY 14853-6902
United States

Peng Liu

Cornell University - S.C. Johnson College of Business - School of Hotel Administration ( email )

448 Statler Hall
Ithaca, NY 14853
United States
6072542960 (Phone)

Zhipeng Zhang

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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