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We use real estate firms to examine how asset liquidation values influence a firm’s financing choice, because the productivity and quality of each asset is observable and potential measures of an asset’s liquidation value are easier to ascertain ex ante. We show that compared to firms that issue equity, firms that issue debt have higher asset quality. The effect of their expected asset liquidation value is significant, even after we control for other factors that influence financing decisions. For firms whose assets’ quality is not easily observable, we find that firms’ financing choices depend heavily on conditions in the overall real estate market.


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© Wiley. This is the peer reviewed version of the following article: Liu, C. H., Liu, P., & Zhang, Z. (2016). Real assets, liquidation value and choice of financing. Real Estate Economics. which has been published in final form here [doi: 10.1111/1540-6229.12148]. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.