Property Segment and REIT Capital Structure

Posted: 8 Oct 2011

See all articles by Mine Ertugrul

Mine Ertugrul

University of Connecticut - School of Business

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate

Date Written: October 6, 2011

Abstract

This paper relies on an increasing number of industry equilibrium studies linking a firm to its industry peers to help explain the observed REIT capital structure variation within property segments beyond what is possible with the traditional partial equilibrium trade-off and pecking order theories, which assume that each firm operates in isolation from other market participants and are not particularly suitable to REIT's position within its property segment. Consistent with the competitive equilibrium model of Maksimovic and Zechner (1991), we find that a REIT's volatility of operating performance relative to the median volatility of operating performance of its segment peers is an important determinant of its leverage ratio. We also find that a REIT's leverage ratio depends on the median leverage ratio in its segment. Leverage is also related to a REIT's status as an incumbent and its role as a leader in the property segment. Leverage is also related to a REIT's status an an incumbent and its role as a leader in the property segment.

Keywords: Property segment, REIT competition, Capital structure

JEL Classification: G32

Suggested Citation

Ertugrul, Mine and Giambona, Erasmo, Property Segment and REIT Capital Structure (October 6, 2011). Journal of Real Estate Finance and Economics, Vol. 43, No. 4, 2011, Available at SSRN: https://ssrn.com/abstract=1939968

Mine Ertugrul

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

Erasmo Giambona (Contact Author)

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate ( email )

721 University Avenue
RM 640
Syracuse, NY 13244-2450
United States
315 443-4885 (Phone)

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