US REITs capital structure determinants and financial economic crisis effects

In: Journal of Property Investment & Finance, Band 35, Heft 6, S. 556-574

Abstract

Purpose
The purpose of this paper is to identify the capital structure determinants through an analysis of 74 All-Equity REITs listed in the US market from 2005 to 2014. Furthermore, the paper aims at understanding the impact of the financial economic crisis (FEC) among the identified explanatory variables.


Design/methodology/approach
A fixed effect panel regression model is performed based on Trade-off Theory (TOT) and Pecking Order Theory as a starting point to provide expectations on the relationships incurring among the identified variables.


Findings
First, while tangibility of assets and crisis evidenced a positive relationship with REITs' financial leverage, operating risk and growth opportunities variables displayed a negative relationship. Meanwhile, size and profitability did not appear to influence the capital structure. Second, it appears that the positive effects of tangibility of assets and profitability variables on US REITs' capital structure increased as a consequence of the FEC. Operating risk and growth opportunities variables slightly increased their negative relationship with US REITs' capital structure after the FEC. The TOT prevails when explaining the economic reality underlying US REITs.


Practical implications
The paper contributes to the understanding of US REITs' financing decisions within the US market. The FEC also had a substantial indirect impact on the financial leverage determinants of US REITs, the latter being nowadays more oriented to maintaining a flexible capital structure.


Originality/value
The paper provides a comprehensive view of the medium-term effect of the FEC on US REITs' capital structure.