Unexpected Inflation, Capital Structure, and Real Risk‐adjusted Firm Performance

Abstract

Managers can improve real risk-adjusted firm performance by matching nominal assets with nominal liabilities, thereby reducing the sensitivity of real risk-adjusted returns to unexpected inflation. The net asset value of US equity real estate investment trusts (REITs) serves as a good proxy for nominal assets and, accordingly, we use a sample of US REITs to test our hypothesis. We find that for the firms in our sample: (i) their real risk-adjusted performance, and (ii) their inflation-hedging qualities are inversely related to deviations from this 'matching-nominals' argument. In addition to providing managers with a vehicle to maximize real riskadjusted performance, our findings also provide investors with the tools to infer inflation-hedging qualities of equity investments.

Financial crises, debt overhang, and firm growth in transition economies

“…These findings are consistent with results concerning the role of macroeconomic conditions and national institutions on cash holdings management (Demir and Ersan (2017); Orlova and Sun (2018)), capital structure decisions (Korajczyk and Levy (2003); Cook and Tang (2010); Gungoraydinoglu andÖztekin (2011);Öztekin and Flannery (2012); Belkhir et al (2016); Alcock and Steiner (2017); Botta and Colombo (2017);Ç olak et al (2018)), the cost of issuing equity (Guyot et al (2014); Botta (2019b)), and the cost of borrowing new funds (Krivogorsky et al (2018)).…”

How innovation and ownership concentration affect the financial sustainability of energy enterprises: evidence from a transition economy

“…While our findings align with Lassala et al. (2017) ; Alcock and Steiner (2017) , they are inconsistent with Baciu and Petre (2018) . The coefficient of EXI is significantly negative, which aligns with the agency theory and Hossain (2020) .…”

Do Ownership Structure, Political Connections and Executive Compensation Have Multifaceted Effects on Firm Performance? An Alternative Approach

“… Risk: Standard deviation of EBIT is used as a proxy of risk (Scott, 1981). In this regard, managers are able to improve real risk-adjusted corporate performance via matching nominal assets with nominal liabilities, hence reducing the sensitivity of a real risk (Alcock & Steiner, 2017).…”