Creditworthiness or Management Signal? An Empirical Investigation of Loan Commitments Obtained by Non-Taxable Firms

Posted: 30 Sep 2003

See all articles by Fayez A. Elayan

Fayez A. Elayan

Brock University-Goodman School of Business

Thomas O. Meyer

Southeastern Louisiana University - Department of Marketing and Finance

Jennifer Li

Brock University

Abstract

Market reaction to the announcement of obtaining loan commitments is examined for a unique sample of tax-exempt real estate investment trusts (REITs). Debt-interest tax incentives may be ruled out on a theoretical basis and empirically due to a significant positive market reaction. Thus, evidence is developed to differentiate between two signaling-effect explanations. The analysis supports the hypothesis that management procures loan commitments to undertake new real estate investments. This action is interpreted by the market as a signal of management's superior information regarding the REIT's true equity value.

Keywords: loan commitments, signaling effect, REITs, tax-exempt firms

JEL Classification: C32, C43, G12

Suggested Citation

Elayan, Fayez A. and Meyer, Thomas Otto and Li, Jingyu, Creditworthiness or Management Signal? An Empirical Investigation of Loan Commitments Obtained by Non-Taxable Firms. Available at SSRN: https://ssrn.com/abstract=417802

Fayez A. Elayan (Contact Author)

Brock University-Goodman School of Business ( email )

1812 Sir Issac Brock Way
St. Catharines, Ontario L2S 3A1
Canada
905-688-5550 (Phone)
905-688-9779 (Fax)

HOME PAGE: http://www.brocku.ca

Thomas Otto Meyer

Southeastern Louisiana University - Department of Marketing and Finance ( email )

SLU 10844
Hammond, LA 70402
United States
985-549-3103 (Phone)
985-549-5010 (Fax)

Jingyu Li

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

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