Developers’ leverage, capital market financing, and fire sale externalities✰

Kanis Saengchote

Finance Research Letters, 2024, vol. 63, issue C

Abstract: Leveraged developers facing rollover risk are more likely to engage in fire sales. Using COVID-19 as a natural experiment, we find evidence of fire sale externalities in the Thai condominium market. Specifically, properties resold by developers with higher leverage ratios are listed at lower prices. This trend is evident for listed developers, who have access to capital market financing, but not for unlisted developers, who primarily rely on bank financing. We attribute this difference to the flexibility offered by bank loan renegotiation as opposed to the rigidity of debt capital market repayments. This observation highlights the pivotal role of commercial banks in financial intermediation, especially in the presence of information asymmetry.

Keywords: Fire sale externalities; Property developers; Leverage; Rollover risk (search for similar items in EconPapers)
JEL-codes: G10 G18 G21 G32 R30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:63:y:2024:i:c:s1544612324003659

DOI: 10.1016/j.frl.2024.105335

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