Do real estate values boost corporate borrowing? Evidence from contract-level data

Murillo Campello, Robert Connolly, Gaurav Kankanhalli and Eva Steiner

Journal of Financial Economics, 2022, vol. 144, issue 2, 611-644

Abstract: Ample literature builds on the notion that real estate values boost corporate secured borrowing (“collateral channel”). A comprehensive contract-level database allows us to observe the value, location, and end-use of firms’ real estate holdings in the US and all debts raised against those assets over the 2000–2017 period. Firms raise new debt following an increase in the value of their real estate but use unsecured rather than secured borrowing. We rationalize these findings with a model where firms’ choices between secured and unsecured debt reflect the systematic risk exposures of the assets on their balance sheets. While secured debt may be seen as a safer claim than unsecured debt contractually, we demonstrate that it can be riskier from an economic perspective. Our analysis adds new insight into how firms set their debt structure.

Keywords: Collateral; Capital structure; Corporate real estate; Investment; Asset risk (search for similar items in EconPapers)
JEL-codes: D22 G32 G33 K12 R30 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:144:y:2022:i:2:p:611-644

DOI: 10.1016/j.jfineco.2021.06.021

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