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Agency, Financial Flexibility, and Firm Value: Evidence from REITs
Working Papers
  • Timothy Riddiough, University of Wisconsin-Madison
  • Eva Steiner, Cornell University School of Hotel Administration
Publication Date

We show empirically that the use of unsecured debt, whose standard covenants commit management to the preservation of debt capacity, leads to lower and more stable leverage. We then show that firm value is sensitive to leverage levels and leverage stability, decreasing in the former and increasing in the latter. Our results support a liquidity-centric version of Jensen's (1986) free cash flow argument. In this version, self-serving managerial tendencies are reigned in without raising leverage indiscriminately, so that financial flexibility is preserved.


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Citation Information

Riddiough, T., & Steiner, E. (2016). Agency, financial flexibility, and firm value: Evidence from REITs [Electronic version]. Retrieved [insert date], from Cornell University, SHA School site: