The Interrelationships between REIT Capital Structure and Investment

24 Pages Posted: 20 Sep 2017

See all articles by Jamie Alcock

Jamie Alcock

The University of Sydney Business School; Centre for International Finance and Regulation (CIFR)

Eva Steiner

Cornell SC Johnson College of Business

Date Written: September 2017

Abstract

We explore the interdependence of investment and financing choices in US listed Real Estate Investment Trusts (REITs) in the period 1973–2011. We find that the investment and financing choices of REITs are interdependent, but they are not made simultaneously. Our results suggest that investment determines leverage, but leverage has no apparent effect on investment decisions. Conversely, the debt‐overhang conflict between shareholders and debt holders that theoretically drives the reverse influence of leverage on investment policy does not appear to filter through to the actual investment choices of REITs. Rather, we find that REIT managers utilize the maturity dimension of capital structure to mitigate potential investment distortions and ensure that investment remains on its value‐maximizing path. We also present novel evidence on the role of investments in driving a wedge between REIT target leverage and actual leverage levels, and on the interplay between investments and leverage adjustments toward the target ratio in explaining REIT capital structure dynamics.

Keywords: Agency conflict, Capital structure, Investment, Leverage, Maturity, REITs

Suggested Citation

Alcock, Jamie and Steiner, Eva Maria, The Interrelationships between REIT Capital Structure and Investment (September 2017). Abacus, Vol. 53, Issue 3, pp. 371-394, 2017. Available at SSRN: https://ssrn.com/abstract=3039778 or http://dx.doi.org/10.1111/abac.12113

Jamie Alcock (Contact Author)

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Eva Maria Steiner

Cornell SC Johnson College of Business ( email )

465B Statler Hall
Ithaca, NY 14853
United States

HOME PAGE: http://https://sha.cornell.edu/faculty-research/faculty/ems457/

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
162
PlumX Metrics