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Financial Flexibility and Manager-Shareholder Conflict: Evidence from REITs

Author
Riddiough, Timothy; Steiner, Eva
Abstract
We show empirically that the use of unsecured debt, which contains standardized covenants that place limits on total leverage and the use of secured debt, is associated with lower and more stable leverage outcomes. We then show that firm value is sensitive to leverage levels and leverage stability, decreasing in the former and increasing in the latter. Our results suggest that unsecured debt covenants function as a managerial commitment device that preserves the firm’s debt capacity to enhance financial flexibility.
Date Issued
2017-06-01Subject
Real estate investment trusts; capital structure; financial flexibility
Related Version
Final version published as: Riddiough, T., & Steiner, E. (2017). Financial flexibility and manager-shareholder conflict: Evidence from REITs. Real Estate Economics. Advanced Online Publication. doi: 10.1111/1540-6229.12226.
Related DOI:
https://doi.org/10.1111/1540-6229.12226Rights
Required Publisher Statement: © Wiley. Reprinted with permission. All rights reserved.
Type
preprint