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Real Assets and Capital Structure

Published online by Cambridge University Press:  16 October 2013

Murillo Campello
Affiliation:
campello@cornell.edu, Johnson Graduate School of Management, Cornell University, 369 Sage Hall, Ithaca, NY 14853 and National Bureau of Economic Research
Erasmo Giambona
Affiliation:
e.giambona@uva.nl, Business School, University of Amsterdam, Roetersstraat 11, Amsterdam 1018 WB, Netherlands.

Abstract

We characterize the relation between asset structure and capital structure by exploiting variation in the salability of corporate assets. To establish this link, we distinguish across different assets in firms’ balance sheets (machinery, land, and buildings) and use an instrumental approach that incorporates market conditions for those assets. We also use a natural experiment driving differential increases in the supply of real estate assets across the United States: The Defense Base Closure and Realignment Act of 1990. Consistent with a supply-side view of capital structure, we find that asset redeployability is a main driver of leverage when credit frictions are high.

Type
Research Articles
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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