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Do Investor Demand and Market Timing Affect Convertible Debt Issuance Decisions by REITs?

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  • Masaki Mori
  • Joseph Ooi
  • Woei Wong

Abstract

The unique regulatory environment of REITs casts doubt on the traditional theoretical process by which REIT managers base their convertible debt issuance decisions on issuer condition and prospects. Anecdotal evidence shows that REITs may have catered to demand by investors, including a demand by convertible bond arbitrageurs when issuing convertible debt. This study examines the rationale behind convertible debt issuances by REITs, focusing on the possible impacts of investor demand and market timing. The results suggest that investor demand significantly affects convertible debt issuance decisions by REITs while certain unknown factors appear to have contributed to the sudden increase of convertible debt offerings in 2006 and 2007. REITs also time the market to conditions in the public debt market. The results only partially support the offered risk-shifting, risk-uncertainty, backdoor-equity, and sequential-financing hypotheses. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Masaki Mori & Joseph Ooi & Woei Wong, 2014. "Do Investor Demand and Market Timing Affect Convertible Debt Issuance Decisions by REITs?," The Journal of Real Estate Finance and Economics, Springer, vol. 49(4), pages 524-550, November.
    • Handle: RePEc:kap:jrefec:v:49:y:2014:i:4:p:524-550
    DOI: 10.1007/s11146-013-9443-y
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