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Collateral and the Choice Between Bank Debt and Public Debt

Author

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  • Leming Lin

    (Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260)

Abstract

This paper tests how collateral value affects a firm’s choice between bank debt and public debt by considering the exogenous variation in the market value of a firm’s real-estate assets caused by fluctuations in local real-estate prices. Using local land supply elasticities as an instrument for local real-estate prices, I estimate that a one-standard-deviation increase in collateral value causes bank debt as a fraction of total debt to increase by six percentage points. This paper was accepted by Wei Jiang, finance .

Suggested Citation

  • Leming Lin, 2016. "Collateral and the Choice Between Bank Debt and Public Debt," Management Science, INFORMS, vol. 62(1), pages 111-127, January.
    • Handle: RePEc:inm:ormnsc:v:62:y:2016:i:1:p:111-127
    DOI: 10.1287/mnsc.2014.2094
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    References listed on IDEAS

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