RFS Advance Access published online on April 18, 2008
Review of Financial Studies, doi:10.1093/rfs/hhn036
Asset Salability and Debt Maturity: Evidence from Nineteenth-Century American Railroads
Department of Economics, Harvard University and NBER
Address correspondence to Efraim Benmelech, Department of Economics, Harvard University, Littauer Center, Cambridge, MA 02138; telephone: 617-496-4787; fax number: 617-495-8570; e-mail: effi_benmelech{at}harvard.edu
JEL Classification: G32, G33, L92, N21, N71
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Abstract |
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I investigate the effect of assets' liquidation values on capital structure by exploiting the diversity of track gauges in nineteenth-century American railroads. The abundance of track gauges limited the redeployability of rolling stock and tracks to potential users with similar track gauge. Moreover, potential demand for both rolling stock and tracks was further diminished when many railroads went under equity receiverships. I find that the potential demand for a railroad's rolling stock and tracks were significant determinants of debt maturity and the amount of debt that was issued by railroads. The results are consistent with liquidation values models of financial contracting and capital structure.
I have greatly benefited from the support and guidance of Douglas Diamond and Raghu Rajan. I am grateful to the members of my dissertation committee: Douglas Diamond (Chair), Douglas Baird, Steve Kaplan, Toby Moskowitz, Raghu Rajan, and Luigi Zingales. I also appreciate comments by Lauren Cohen, Eugene Kandel, Anil Kashyap, Randall Kroszner, Carlos Ramírez, Jeremy Stein, Per Strömberg, René Stulz, Peter Tufano, Annette Vissing-Jø rgensen, Marc Weidenmier, Mark Weinstein, seminar participants at Boston College, Columbia, Cornell, Duke, Harvard (Economics and HBS), Hebrew University, Kellogg, Lehman Brothers, Princeton, NYU, Stanford, University of Chicago, UCLA, Wharton, Yale, the NBER'S Universities Research Conference on Developing and Sustaining Financial Markets 1820–2000, and the Center for Financial Research at the FDIC. I also thank Michael Weisbach (the editor) and two anonymous referees. All errors are my own. I acknowledge financial support from the Federal Deposit Insurance Corporation Center for Financial Research, and from the Lehman Brothers Fellowship for Research Excellence in Finance.