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

26 Pages Posted: 3 Jun 2017

See all articles by Jamie Alcock

Jamie Alcock

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

Eva Steiner

School of Hotel Administration, Cornell University

Multiple version iconThere are 2 versions of this paper

Date Written: June 2017

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 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 maximize real risk‐adjusted performance, our findings also provide investors with the tools to infer inflation‐hedging qualities of equity investments.

Keywords: Capital structure, Inflation hedging, Nominal assets, Real risk‐adjusted performance, REITs

Suggested Citation

Alcock, Jamie and Steiner, Eva Maria, Unexpected Inflation, Capital Structure, and Real Risk‐Adjusted Firm Performance (June 2017). Abacus, Vol. 53, Issue 2, pp. 273-298, 2017. Available at SSRN: https://ssrn.com/abstract=2979621 or http://dx.doi.org/10.1111/abac.12102

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

School of Hotel Administration, Cornell University ( email )

465B Statler Hall
Ithaca, NY 14853
United States

HOME PAGE: http://https://sha.cornell.edu/about/directory/instructors/ems457

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