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What determines the capital structure of real estate companies?

Author

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  • Giacomo Morri
  • Fabio Cristanziani

Abstract

Purpose - This paper aims to investigate the determinants affecting the choice of the capital structure of European property companies. Design/methodology/approach - The analysis considers the set of companies belonging to the EPRA/NAREIT Europe Index (both REITs and non‐REITs) and is based on panel data to get greater reliability and to check the cross‐time path of explanatory variables. Seven independent variables (size, profitability, growth opportunities, cost of debt, ownership structure, risk, and category) are studied over a five‐year period. Findings - Results clearly show that non‐REIT companies are significantly more leveraged than REITs, confirming the importance of the tax‐exempt status in affecting capital structure choices. The negative relationship between operating risk and leverage demonstrates that the managers of riskier firms tend to reduce the overall company's uncertainty by adopting a more careful capital structure. Moreover, more profitable firms have less recourse to leverage. Evidence also suggests that the company's asset size is able to directly influence the amount of debt issued, confirming the hypothesis that debt is cheaper for bigger firms and its issue is affected by economies of scale. Originality/value - The paper represents a break point with past literature for the sample, based on European companies, and the methodology, that relies more on market rather than on balance‐sheet or income statement items (obtaining higher comparability and avoiding country‐specific bias mainly concerning law, fiscal and earning management issues).

Suggested Citation

  • Giacomo Morri & Fabio Cristanziani, 2009. "What determines the capital structure of real estate companies?," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 27(4), pages 318-372, July.
    • Handle: RePEc:eme:jpifpp:v:27:y:2009:i:4:p:318-372
    DOI: 10.1108/14635780910972288
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    Citations

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    Cited by:

    1. Nguyen Nghia Hoai & Chinda Thanwadee, 2015. "Investigating Factors Influencing Profits Enhancement in Real Estate Companies in Ho Chi Minh City, Viet Nam," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 1(3), pages 107-113.
    2. Demircioğlu, Emre, 2014. "Organization performance and happiness in the context of leadership behavior (case study base on psychological well-beings)," MPRA Paper 61484, University Library of Munich, Germany.
    3. Yunus Yasin Dogan & Chinmoy Ghosh & Milena Petrova, 2019. "On the Determinants of REIT Capital Structure: Evidence from around the World," The Journal of Real Estate Finance and Economics, Springer, vol. 59(2), pages 295-328, August.
    4. Zalina Zainudin & Mazhar Hallak Kantakji & Omer Bin Thabet & Nur Syairah Ani & Nursyuhadah Abdul Rahman, 2019. "An Investigation of the Moderating Effect of Liquidity on the Relationship between Debt and Financial Performance of REITs in Malaysia: An Optimal Liquidity Estimation," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 13(3), September.
    5. Codosero Rodas, José Maria & Castanho, Rui Alexandre & Cabezas Fernández, José & Naranjo Gómez, José Manuel, 2020. "Sustainable valuation of land for development. Adding value with urban planning progress. A Spanish case study," Land Use Policy, Elsevier, vol. 92(C).
    6. Karartı, Tuncay, 2014. "Impact of ownership structure on leverage of non-financial firms in developing countries," MPRA Paper 61483, University Library of Munich, Germany.
    7. Bojana Vukovic & Suncica Milutinovic & Nikola Milicevic & Dejan Jaksic, 2020. "The Analysis of Indebtedness of Retail Companies in the Balkan Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 83-104.
    8. Yousef Ibrahim, 2019. "The Determinants of Capital Structure: Evidence from GCC and UK Real Estate Sectors," Real Estate Management and Valuation, Sciendo, vol. 27(2), pages 108-125, June.
    9. Elizabeth Devos & Erik Devos & He Li & Desmond Tsang, 2022. "Operating Lease as Alternative Financing for REITs: a Viable Strategy or a Sign of Trouble?," The Journal of Real Estate Finance and Economics, Springer, vol. 65(2), pages 153-180, August.
    10. José Maria Codosero Rodas & José Manuel Naranjo Gómez & Rui Alexandre Castanho & José Cabezas, 2018. "Land Valuation Sustainable Model of Urban Planning Development: A Case Study in Badajoz, Spain," Sustainability, MDPI, vol. 10(5), pages 1-18, May.
    11. bag, DINABANDHU, 2013. "Market Leverage Of Real Estate Firms In India: Empirical Study," OSF Preprints 3d7v4, Center for Open Science.
    12. Maziar Ghasemi & Nazrul Hisyam Ab Razak* & Komeil Dehghani, 2018. "Determinants of Debt Structure in Ace Market Bursa Malaysia: A Panel Data Analysis," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 390-395:6.

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