Do liquidation values affect financial contracts? Evidence from commercial loan contracts and zoning regulation

Efraim Benmelech, Mark J. Garmaise, Tobias J. Moskowitz

Research output: Contribution to journalReview articlepeer-review

96 Scopus citations

Abstract

We examine the impact of asset liquidation value on debt contracting using a unique set of commercial property loan contracts. We employ commercial zoning regulation to capture the flexibility of a property's permitted uses as a measure of an asset's redeployability or value in its next best use. Within a census tract, more redeployable assets receive larger loans with longer maturities and durations, lower interest rates, and fewer creditors, controlling for the property's type, sale price, and earnings-to-price ratio. These results are consistent with incomplete contracting and transaction cost theories of liquidation value and financial structure.

Original languageEnglish (US)
Pages (from-to)1121-1154
Number of pages34
JournalQuarterly Journal of Economics
Volume120
Issue number3
DOIs
StatePublished - Aug 2005

ASJC Scopus subject areas

  • Economics and Econometrics

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