Abstract
Executive Summary. Using a sample of equity real estateinvestment trusts (REITs) traded on major exchangesin the United States between 1990 and 2009,this study examines the relationship between REIT lineof credit usage and subsequent firm profitability. The results,which are robust across multiple accounting measuresof firm operating performance, indicate enhancedliquidity is strongly associated with better firm performance.Furthermore, the benefits of enhanced liquidity appearto be strongest for those firms identified as beingcapital constrained. These results also provide insightinto, and a rational economic justification for, the previouslydocumented positive borrower wealth effects associatedwith bank loan announcements.
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