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

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

doi:10.1162/003355305774268200

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

Efraim Benmelech^1,2,3,4; Mark J. Garmaise^1,2,3,4; Tobias J. Moskowitz^1,2,3,4

¹ National Bureau of Economic Research · ² University of California, Los Angeles · ³ University of Illinois Chicago · ⁴ University of Chicago

Quarterly Journal of Economics 2005

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.

DOI: 10.1162/003355305774268200
Volume: 120 (3)
Pages: 1121-1154
Language: en
Export: BibTeX
Sources: openalex crossref