Joint Leverage and Maturity Choices in Real Estate Firms: The Role of the REIT Status

Alcock, Jamie; Steiner, Eva; Tan, Kelvin Jui Keng

doi:10.1007/s11146-012-9379-7

Cited by 28 publications

(30 citation statements)

References 47 publications

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“…Furthermore, they do not provide any survey evidence to bridge the gap between theories and practice. 5 For example, empirical capital structure papers published in the leading Asia Pacific journals between 2011 and 2015 include Tan, Lee and Faff (2015); Gao and Zhu (2015); Alcock and Steiner (2015); Mohamed, Masih and Bacha (2015); Huang (2014); Arqawi, Bertin, and Prather (2014) ;Chang, Chen, and Liao (2014) ;Smith, Chen and Anderson, (2015); Alcock, Steiner and Tan (2014) ;Lam, Zhang, and Lee (2013);Zhu (2013); O'Connor and Flavin (2013);Zhang (2012);Zhu (2012) ;Goyal, Nova, and Zanetti (2011);and Pindado and De La Torre (2011). Second, the surveys that have been conducted in the field to date focus mainly on the financial behaviour of U.S. firms, with only limited investigation of other countries, and very little consideration of the Australian practice, especially after the most recent Global Financial Crisis (GFC). 6 So far, international surveys do not always find consistency across responses by Chief Financial Officers (CFOs) to capital structure decisions across countries.…”

Section: Introductionmentioning

confidence: 99%

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

2015

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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Section: Introductionmentioning

confidence: 99%

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

2015

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“…On the contrary, externally managed REITs are associated with lower leverage and they pursue loans of shorter maturity. Our results are robust to the inclusion of other firm variables that influence debt decisions of Asian-Pacific REITs, and to alternative specifications which we model leverage and debt maturity as simultaneous decisions (Giambona et al 2008;Ghosh et al 2011;Alcock et al 2014).…”

Section: Introductionmentioning

confidence: 57%

“…We continue to find significant positive coefficient for Sponsor and significant negative coefficient for External Management. Alcock et al (2014) show that leverage and debt maturity are joint financing decisions for U.S. listed real estate firms. Hence, leverage and debt maturity could be simultaneously determined.…”

Section: Empirical Analysismentioning

confidence: 99%

“…Leland and Toft (1996) argue that capital structure is not a standalone choice and optimal leverage is a function of a firm's risk as well as its debt maturity. Giambona et al (2008) and Alcock et al (2014) highlight the importance of the multidimensionality of capital structure choices in the real estate industry 2 noting that, when REITs issue debt, a crucial and simultaneous decision is to determine the maturity term of the debt contracts. Research in debt maturity choices has found some determinants for maturity in REIT debts.…”

Section: Introductionmentioning

confidence: 99%

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The Role of Sponsor and External Management on the Capital Structure of Asian-Pacific REITs: The Case of Australia, Japan, and Singapore

et al. 2014

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This paper studies how the presence of sponsor and external management affect leverage and debt maturity decisions in three major Asian-Pacific REIT markets: Australia, Japan and Singapore. Our empirical results indicate that sponsored REITs opt for higher levels of leverage and loans with longer maturity. On the contrary, externally managed REITs are associated with lower leverage and loans with shorter maturity. Our results are robust to the inclusion of other firm variables and to alternative specifications. Subsequent to the financial crisis, the impact of sponsorship on debt financing decisions has diminished, and borrowing of externally managed REITs is further constrained.

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“…Theoretically, a REIT has no motive to issue debt and is more advisable not to issue debt when its stock is overvalued. However, in the real world, REITs have debt issues and their leverage ratio is even greater than that of non-REIT firms (Alcock et al, 2014). The rationale for this action is still a question that needs to be settled by future research.…”

Section: << Insertmentioning

confidence: 99%

The Impact of Misvaluation in the REIT Sector

Nguyen¹,

Breuer²,

Steininger³

2017

24th Annual European Real Estate Society Conference

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By using the decomposing market-to-book model and the residual income model to estimate misvaluation, we find empirical evidence supporting the proposition that misvaluation has an impact on the financing decisions and liquidity management of REITs. Regarding the financing decisions, REITs experiencing a high increase in their stock prices will tend to increase their equity to exploit the low cost of capital relative to other financing forms. In addition, REITs are also more likely to increase debt issuances when their misvaluation is higher because overvalued REITs generally have easier access to debt. Finally, REITs use more cash than bank credit lines in liquidity management when they experience a misvaluation.

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Joint Leverage and Maturity Choices in Real Estate Firms: The Role of the REIT Status

Cited by 28 publications

References 47 publications

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

The Role of Sponsor and External Management on the Capital Structure of Asian-Pacific REITs: The Case of Australia, Japan, and Singapore

The Impact of Misvaluation in the REIT Sector

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