Article

The Journal of Real Estate Finance and Economics

, Volume 39, Issue 1, pp 39-57

The Determinants of REIT Cash Holdings

  • William G. HardinIIIAffiliated withDepartment of Finance, College of Business Administration, Florida International University
  • , Michael J. HighfieldAffiliated withDepartment of Finance and Economics, College of Business and Industry, Mississippi State University
  • , Matthew D. HillAffiliated withDepartment of Finance, School of Business Administration, University of Mississippi Email author 
  • , G. Wayne KellyAffiliated withDepartment of Finance and Economics, College of Business and Industry, Mississippi State University

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Abstract

The factors influencing the cash holdings of REITs are examined with the view that the REIT industry should yield new information regarding the drivers of corporate cash policy due to their unique operating conditions. The availability of REIT line of credit data also allows us to test the association between cash holdings and line of credit access and use. Data constraints in prior investigations have left this an unresolved empirical question in the cash holdings literature. The baseline results show that REIT cash holdings are inversely related to funds from operations, leverage, and internal advisement and are directly related to the cost of external finance and growth opportunities. Cash holdings are also negatively associated with credit line access and use. The results imply that REIT managers elect to hold little cash to reduce the agency problems of cash flow thereby increasing transparency and reducing the future cost of external capital.

Keywords

REIT Cash Liquidity Cash flow Working capital

JEL Classification

G12 G14 G24