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Do Liquidation Values Affect Financial Contracts? Evidence from Commercial Loan Contracts and Zoning Regulation

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Author Info
Efraim Benmelech
Mark J. Garmaise
Tobias Moskowitz

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Abstract

We examine the impact of asset liquidation value on debt contracting using a unique set of commercial property non-recourse 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 current value of the property, its type, and neighborhood. These results are consistent with incomplete contracting and transaction cost theories of liquidation value and financial structure.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11004.

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Date of creation: Dec 2004
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Handle: RePEc:nbr:nberwo:11004

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G3 - Financial Economics - - Corporate Finance and Governance
R0 - Urban, Rural, and Regional Economics - - General

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Efraim Benmelech & Nittai K. Bergman, 2008. "Collateral Pricing," NBER Working Papers 13874, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. John Y. Campbell & Stefano Giglio & Parag Pathak, 2009. "Forced Sales and House Prices," NBER Working Papers 14866, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Elena Loutskina & Philip E. Strahan, 2006. "Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Acceptance Rates," NBER Working Papers 11983, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Luigi Guiso & Raoul Minetti, 2007. "The Structure of Multiple Credit Relationships: Evidence from US Firms," Economics Working Papers ECO2007/46, European University Institute. [Downloadable!]
  5. Efraim Benmelech & Nittai K. Bergman, 2008. "Liquidation Values and the Credibility of Financial Contract Renegotiation: Evidence from U.S. Airlines," NBER Working Papers 14059, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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