Financial structure of property companies and capital market development

Purpose - The purpose of this paper is to examine the relationship between the state of development in the capital market and the debt ratios of 579 property companies publicly listed in 13 countries. Design/methodology/approach - A total of two indices are first constructed to measure the maturity of the debt and equity capital market in each country from 1994 to 2007. Panel regressions are then carried out to examine the impact of capital market maturity on the financial gearing of property companies. Findings - The authors observe that the maturity of the capital market is correlated with the stage of development of the respective economies. The panel regression results show that the maturity of the debt capital market has a significant and positive influence on the firms' capital structure. In contrast, developments in the equity capital market have an inverse impact on the debt ratios of property companies. Practical implications - Overall, the development of the capital markets is good for capital intensive property companies who may face challenges to obtain external funding in transition economies with underdeveloped capital markets. As the capital markets of these economies mature, coupled with improvements in the legal and institutional framework, property companies will have more scope to raise capital to expand their operations. Originality/value - The paper offers international evidence on, first, the capital structure practices of property companies in different regions, and second, how capital market development influences the firms' financing decisions.