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Quarterly Journal of Economics Vol. 120 No. 3 2005

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

E. Benmelech1; Mark J. Garmaise2; T. J. Moskowitz3

1 Harvard University Press · 2 University of California, Los Angeles · 3 University of Chicago

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 redeploy ability 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.

DOI
10.1093/qje/120.3.1121
Volume
120
Issue
3
Pages
1121-1154
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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