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Developers’ leverage, capital market financing, and fire sale externalities✰

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  • Saengchote, Kanis

Abstract

Leveraged developers facing rollover risk are more likely to engage in fire sales. Using COVID-19 as a natural experiment, we find evidence of fire sale externalities in the Thai condominium market. Specifically, properties resold by developers with higher leverage ratios are listed at lower prices. This trend is evident for listed developers, who have access to capital market financing, but not for unlisted developers, who primarily rely on bank financing. We attribute this difference to the flexibility offered by bank loan renegotiation as opposed to the rigidity of debt capital market repayments. This observation highlights the pivotal role of commercial banks in financial intermediation, especially in the presence of information asymmetry.

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  • Saengchote, Kanis, 2024. "Developers’ leverage, capital market financing, and fire sale externalities✰," Finance Research Letters, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:finlet:v:63:y:2024:i:c:s1544612324003659
    DOI: 10.1016/j.frl.2024.105335
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    More about this item

    Keywords

    Fire sale externalities; Property developers; Leverage; Rollover risk;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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