Creditworthiness or Management Signal? An Empirical Investigation of Loan Commitments Obtained by Non-taxable Firms

Creditworthiness or Management Signal? An Empirical Investigation of Loan Commitments Obtained by... Market reaction to the announcement of obtaining loan commitments (LCs) is examined for a unique sample of tax-exempt real estate investment trusts (REITs). Debt-interest tax incentives may be ruled out on a theoretical basis and empirically due to a significant positive market reaction. Thus, evidence is developed to differentiate between two signaling-effect explanations. The analysis supports the hypothesis that management procures LCs to undertake new real estate investments. This action is interpreted by the market as a signal of management's superior information regarding the REIT's true equity value. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Creditworthiness or Management Signal? An Empirical Investigation of Loan Commitments Obtained by Non-taxable Firms

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Publisher
Springer Journals
Copyright
Copyright © 2004 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1026325607145
Publisher site
See Article on Publisher Site

Abstract

Market reaction to the announcement of obtaining loan commitments (LCs) is examined for a unique sample of tax-exempt real estate investment trusts (REITs). Debt-interest tax incentives may be ruled out on a theoretical basis and empirically due to a significant positive market reaction. Thus, evidence is developed to differentiate between two signaling-effect explanations. The analysis supports the hypothesis that management procures LCs to undertake new real estate investments. This action is interpreted by the market as a signal of management's superior information regarding the REIT's true equity value.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Oct 18, 2004

References

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