TY - JOUR
T1 - Real Assets, Collateral and the Limits of Debt Capacity
AU - Giambona, Erasmo
AU - Mello, Antonio S.
AU - Riddiough, Timothy J.
N1 - Publisher Copyright:
© 2017 American Real Estate and Urban Economics Association
PY - 2018/12/1
Y1 - 2018/12/1
N2 - We develop a model in which better quality firms separate themselves by issuing unsecured debt and committing to maintain a strong balance sheet, something lower-quality firms find too costly to do. Lower-quality firms, in contrast, pledge real assets in secured debt transactions. However, during turbulent financial periods, pooling occurs in the secured debt market, which raises the average quality of firms in that market. We use the 1998 Russian crisis together with the role played by Fannie Mae and Freddie Mac for apartment REITs to highlight the relation between financing outcomes and firm type.
AB - We develop a model in which better quality firms separate themselves by issuing unsecured debt and committing to maintain a strong balance sheet, something lower-quality firms find too costly to do. Lower-quality firms, in contrast, pledge real assets in secured debt transactions. However, during turbulent financial periods, pooling occurs in the secured debt market, which raises the average quality of firms in that market. We use the 1998 Russian crisis together with the role played by Fannie Mae and Freddie Mac for apartment REITs to highlight the relation between financing outcomes and firm type.
UR - http://www.scopus.com/inward/record.url?scp=85021838019&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85021838019&partnerID=8YFLogxK
U2 - 10.1111/1540-6229.12207
DO - 10.1111/1540-6229.12207
M3 - Article
AN - SCOPUS:85021838019
SN - 1080-8620
VL - 46
SP - 836
EP - 886
JO - Real Estate Economics
JF - Real Estate Economics
IS - 4
ER -