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Real Estate Prices and Firm Capital Structure

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Abstract

This paper examines the impact of real estate prices on fi…rm capital structure decisions. I …find that for a typical US listed company, a one percent increase in collateral value translates into a 0.12 percent increase in total leverage. My identi…cation strategy employs a triple interaction of MSA level land supply elasticity, aggregate real estate price changes and a measure of a …firm’s real estate holdings as an exogenous source of variation in the value of fi…rm collateral. I fi…nd that for every one percent increase in collateral value, a fi…rm’s annualized cost of long-term debt drops by four basis points. More …financially constrained fi…rms tilt their debt structure towards arm’s length fi…nancing, less information sensitive debt and longer-term debt maturities in response to collateral value appreciation. These results indicate the importance of collateral values in mitigating potential informational imperfections. More …financially constrained fi…rms use collateral-induced borrowing proceeds for …financing new investment and for equity payouts.
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Dates and versions

hal-00686121 , version 1 (07-04-2012)

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  • HAL Id : hal-00686121 , version 1

Cite

Dragana Cvijanovic. Real Estate Prices and Firm Capital Structure. 2012. ⟨hal-00686121⟩

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