Deleveraging and Monitored Financial Flexibility: Evidence from Real Estate Investment Trusts

McKay Price, Vladimir A. Gatchev, Nandkumar Nayar and Ajai Singh

ERES from European Real Estate Society (ERES)

Abstract: DeAngelo, Gonçalves, and Stulz (2018) offer a “credit-card” perspective of debt and document that firms periodically deleverage to restore financial flexibility. However, the valuation consequences of deleveraging have been left unexplored. Lines of credit, closely monitored by the associated lending institutions, represent the closest analog to corporate credit-cards. Employing a sample of equity issuances, we find that deleveraging via repayments of credit lines is viewed favorably by markets. We posit that repayments replenish credit lines and restore financial flexibility, while preserving bank monitoring (Acharya, Almeida, Ippolito, Perez, 2014). We refer to the integrated beneficial effect as Monitored Financial Flexibility.

Keywords: Credit lines; Deleveraging; Monitored financial flexibility; Real Estate Investment Trusts (REITs) (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2022-01-01
New Economics Papers: this item is included in nep-cfn and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:2022_121

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