Firm-specific determinants of capital structure : a study on U.S. REITs

Abstract

The scope of this dissertation was to navigate through the extensive literature in search of an appropriate measure of capital structure of U.S. Real Estate Investment Trusts (REITs), to identify accurate its firm-specific determinants, and to test whether an actual relationship exists between these determinants and the measure. This was done for the period between 1st January 2012 and 31st December 2017.

The appropriate measure was found to be the leverage ratio Total Book Value of Debt over Total Book Value of Debt plus Total Market Value of Equity. Furthermore, the core firm-specific determinants of the capital structure U.S. REITs were found to be asset tangibility, profitability, growth opportunities, firm size, risk and firm age.

In this regard, the dissertation then moved on to test the aforementioned relationship. To do so, data for a sample of 104 firms was ultimately collected which resulted in a considerable 4.992 firm-year observations. A multi-linear regression with the leverage ratio as the dependent variable and the determinants as the independent ones was then initiated.

Profitability was found to be negatively related to leverage, whilst growth opportunities is positively related, firm size is negatively related, and risk is negatively related to capital structure. Furthermore, the signs of the relationship between both asset tangibility and firm age individually to capital structure were negative and positive respectively. This is counter to earlier research in this field and is likely due to both independent variables being insignificant at all confidence levels.

The conclusions drawn from this dissertation may be of value to both retail and wholesale investors, and U.S. REIT managers alike.