o Time : March 10, Friday 12:30 ~ 2:00 p.m.

o Venue : 9705(The 7th floor seminar room)

Liquidation Value and Debt Availability

-Abstract

The conventional view predicts that firms with more liquid assets are easier to finance. However, recent theories predict that greater asset liquidity can indeed reduce a firm''s ability to obtain debt financing. Using an unique data set that provides detailed information on credit availability, this paper investigates the ambiguity in the theoretical predictions for the link between liquidation values and debt availability. I find that, when averaging over all firms, greater liquidation values increase the availability of external financing but that there are cross-industry differences. Particularly in industries where firms must trade their liquid assets (e.g., retail/wholesale), I find no significant relationship between liquidation values and debt availability. More importantly, I find that debt availability does not increase with the liquidation value of a firm''s assets when a firm borrows cash (usable at the borrower''s discretion) rather than capital goods (untransferable to other types of assets without the lender''s endorsement). Overall, the findings here suggest that the relationship between liquidation values and debt availability can be severed when a firm with liquid assets cannot credibly commit against diverting its assets.