The Capital Structure Decision for Listed Real Estate Companies

33 Pages Posted: 20 Jan 2006

See all articles by Shaun A. Bond

Shaun A. Bond

UQ Business School

Peter J. Scott

University of Cambridge - Department of Land Economy

Date Written: January 2006

Abstract

The two main theories of capital structure are tested on a sample of 18 UK listed real estate companies, over a seven year period to 2004. Using dynamic specifications of the models inferences about firm financing behaviour can be made. Specifically: (1) Where firms turn to external financing, debt constitutes the majority of securities issued. Debt issuance tracks the need for external finance closely, and is robust to periods when firms run financing 'surpluses' - debt is paid down during these periods. (2) The pecking order specification dominates the trade-off theory in a direct comparison of the dynamic models. The power of this result is much higher than any previous studies. Real estate financing appears to sit comfortably as part of a broader capital structure framework in which information asymmetries drive firm financing behaviour.

Keywords: Capital structure, pecking order, trade off theory, property companies, real estate.

JEL Classification: G32, R33

Suggested Citation

Bond, Shaun Alexander and Scott, Peter J., The Capital Structure Decision for Listed Real Estate Companies (January 2006). Available at SSRN: https://ssrn.com/abstract=876429 or http://dx.doi.org/10.2139/ssrn.876429

Shaun Alexander Bond (Contact Author)

UQ Business School ( email )

The University of Queensland
Brisbane, QLD 4072
Australia

Peter J. Scott

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

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