Collateral and the Limits of Debt Capacity: Theory and Evidence

Abstract

This paper considers how collateral is used to finance a going concern, and demonstrates with theory and evidence

Creditor Rights, Debt Capacity and Securities Issuance: Evidence from Anti-Recharacterization Laws

“…Creditors are more willing to supply loans and extend additional credit to firms with a large collateral base. Additionally, firms that tend to have greater leverage tend to employ a higher proportion of secured debt financing in their capital structure (Giambona, Mello and Riddiough, 2012).…”

Comparing Securitized and Balance Sheet Loans: Size Matters

“…The sample contains fewer loans on NYC property than NYC's share of the office property market in our four cities. This is most likely because NYC property investors are larger and thus a larger share of transactions are financed with public debt rather than mortgages (see Giambona, Mello, and Riddiough, 2012).…”

“…Given that REITs often have extensive ties to lenders, it may be surprising that they rely on securitized mortgages. However, many REITs rely on general bank loans or unsecured debt rather than property-specific mortgages such that many of their property purchases will not be financed with a mortgage per se; see Giambona, Mello, and Riddiough (2012) for a discussion of REITs' financing strategies. Corporate borrowers are more likely to rely on balance sheet loans.…”

What Drives Security Issuance Decisions Of Firms Listed On The Johannesburg Stock Exchange: Market Timing Or Dynamic Trade-Off Theory Or Both?

“…Asset tangibility is a direct measure of the collateral amount that a firm can offer to its bondholders (Leland, 1994). Firms with higher stocks of tangibles offer lenders increased security, which in turn increases the firms' debt capacities and credit ratings which, lower their costs of debt (Giambona, Mello & Riddiough, 2012). These features of large and profitable firms combine to give them higher credit ratings and lower bankruptcy costs, and this makes borrowing a more attractive option to them.…”