Working Paper: NBER ID: w11004
Authors: Efraim Benmelech; Mark J. Garmaise; Tobias J. Moskowitz
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.
Keywords: liquidation value; financial contracts; commercial loans; zoning regulation
JEL Codes: G3; R0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater redeployability (J62) | larger loan sizes (G51) |
| greater redeployability (J62) | lower interest rates (E43) |
| greater redeployability (J62) | longer loan maturities (G51) |
| greater redeployability (J62) | less likelihood of multiple creditors (G33) |