Illiquidity and Asset Sales

Research Seminars
Academic Areas Finance
Prof. Rodney Ramcharan, Associate Professor of Finance and Business Economics, Marshall School of Business, University of Southern California
June 27, 2017 | 3:00 PM - 4:30 PM | Tuesday
AC 2 MLT, Level - 2, ISB, Hyderabad campus, Hyderabad, India
For ISB Community
Abstract: This paper examines the impact of bank balance sheet liquidity on the liquidation value of troubled real estate assets. The evidence suggests that a loss of deposits and increased funding pressures are associated with a subsequent decline in the liquidation value of real estate collateral and faster asset sales. These effects are significantly larger among banks that historically had less liquid assets on their balance sheet and larger off-balance sheet commitments. Taken together, these results show that the balance sheet liquidity of financial institutions can directly affect real asset prices.