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Real Assets, Liquidation Value and Choice of Financing
Author(s) -
Liu Crocker H.,
Liu Peng,
Zhang Zhipeng
Publication year - 2016
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12148
Subject(s) - asset (computer security) , real estate , finance , debt , equity (law) , business , economics , value (mathematics) , market value , ex ante , debt financing , computer security , machine learning , computer science , political science , law , macroeconomics
We use real estate firms to examine how asset liquidation values influence a firm's financing choice, because 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 estate market.