Financial Flexibility and Manager-Shareholder Conflict: Evidence from REITs

Forthcoming, Real Estate Economics

57 Pages Posted: 6 May 2016 Last revised: 25 Oct 2017

See all articles by Timothy J. Riddiough

Timothy J. Riddiough

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics

Eva Steiner

Cornell SC Johnson College of Business

Date Written: Oct 24, 2017

Abstract

Using equity REIT data, we show empirically that the use of unsecured debt, which contains standardized covenants that place limits on total leverage and the use of secured debt, is associated with lower leverage outcomes. We then show that firm value is sensitive to leverage levels, where lower leverage is associated with higher firm value. In the presence of weak managerial governance, our results suggest that unsecured debt covenants function as a managerial commitment device that preserves the firm's debt capacity to enhance financial flexibility.

Note: POSS. RPS,

Keywords: Real estate investment trusts, capital structure, financial flexibility

JEL Classification: G32

Suggested Citation

Riddiough, Timothy J. and Steiner, Eva Maria, Financial Flexibility and Manager-Shareholder Conflict: Evidence from REITs (Oct 24, 2017). Forthcoming, Real Estate Economics. Available at SSRN: https://ssrn.com/abstract=2776521 or http://dx.doi.org/10.2139/ssrn.2776521

Timothy J. Riddiough

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-3531 (Phone)
608-265-2738 (Fax)

Eva Maria Steiner (Contact Author)

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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