Unexpected Inflation, Capital Structure, and Real Riskâadjusted Firm Performance
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Peer-reviewed
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Abstract
jats:pManagers can improve real riskâadjusted firm performance by matching nominal assets with nominal liabilities, thereby reducing the sensitivity of real riskâadjusted 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 riskâadjusted performance, and (ii) their inflationâhedging qualities are inversely related to deviations from this âmatchingânominalsâ argument. In addition to providing managers with a vehicle to maximize real riskâadjusted performance, our findings also provide investors with the tools to infer inflationâhedging qualities of equity investments.</jats:p>
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This is the author accepted manuscript. The final version is available fromWiley via https://doi.org/ 10.1111/abac.12102
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1467-6281