Corporate Governance and Collateral Effect of Real Estate

Author

Start Page / End Page

Volume

Issue Number

Year

Publication

Daxuan Zhao

117 / 138

27

1

2024

International Real Estate Review

 

Abstract

The collateral channel literature predicts that soaring real estate prices increase the debt capacity of firms with more real estate asset holdings. This paper discusses the different relationships between collateral and investment. We find that firms with strong corporate governance were more likely to increase debt capacity via the collateral channel during the real estate boom from 1993 to 2006. Entrenched managers used less debt to finance their investments when their real estate collateral values increased. Our results hold even after controlling for non-collateralized debts and credit rating of the sample firms.

 

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Keywords

Collateral Effect, Corporate Governance, G-Index, Real Estate Assets, Investment Decisions