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Abstract
Executive Summary. Using a sample of equity real estate investment trusts (REITs) traded on major exchanges in the United States between 1990 and 2009, this study examines the relationship between REIT line of credit usage and subsequent firm profitability. The results, which are robust across multiple accounting measures of firm operating performance, indicate enhanced liquidity is strongly associated with better firm performance. Furthermore, the benefits of enhanced liquidity appear to be strongest for those firms identified as being capital constrained. These results also provide insight into, and a rational economic justification for, the previously documented positive borrower wealth effects associated with bank loan announcements.