Article1988

Capital Structure Theory and REIT Security Offerings

185 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

ABSTRACT In this paper, we examine the stock price reactions to announcements of new security offerings by Real Estate Investment Trusts (REITs). REITs offer a unique setting in which to study these events because they do not pay taxes at the firm level. Theory suggests that the net tax gain to corporate borrowing is unambiguously negative for a REIT. Contrary to some recent studies, however, we find a positive stock price reaction to debt offerings, while the negative equity‐issuance effect is preserved. Further empirical evidence lends support to signalling as the explanation for the positive significant debt‐issuance effect.

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References

1984Corporate financing and investment decisions when firms have information that investors do not have 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1996Agency costs of free cash flow, corporate finance, and takeovers 1985Using daily stock returns 1977The Determination of Financial Structure: The Incentive-Signalling Approach 1985Dividend Policy under Asymmetric Information 1984Two Agency-Cost Explanations of Dividends 1980Optimal capital structure under corporate and personal taxation

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1993Insider Trading as a Signal of Private Information 2002Capital structure and profitability of the property and construction sectors in Hong Kong 2009An Analysis of REIT Security Issuance Decisions 2003Financing Choice and Liability Structure of Real Estate Investment Trusts 1992Initial public offerings of equity securities 1999The determinants of capital structure Evidence on UK property companies

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