Capital Structure and the Redeployability of Tangible Assets

摘要

We characterize the relation between corporate asset structure and capital structure by exploitingvariation in the salability of tangible assets. Theory suggests that tangibility increases borrowingcapacity because it allows creditors to more easily repossess a firmu2019s assets. Tangible assets, however,are often illiquid. We show that the redeployability of tangible assets is a main determinantof corporate leverage. To establish this link, our analysis uses an instrumental variables approachthat incorporates measures of supply and demand for various types of tangible assets (e.g., machines,land, and buildings). Consistent with a credit supply-side view of capital structure, we find that assetredeployability is a particularly important driver of leverage for firms that are likely to face creditfrictions (small, unrated firms). Our tests also show that asset redeployability facilitates borrowingthe most during periods of tight credit. Our work contributes new evidence to capital structure modelsthat are based on contract incompleteness and limited enforceability. It does so characterizing awell-defined channel through which credit frictions affect firm financial decisions.