The Journal of Real Estate Finance and Economics

, Volume 34, Issue 1, pp 81–105

On the Capital Structure of Real Estate Investment Trusts (REITs)


DOI: 10.1007/s11146-007-9005-2

Cite this article as:
Feng, Z., Ghosh, C. & Sirmans, C.F. J Real Estate Finan Econ (2007) 34: 81. doi:10.1007/s11146-007-9005-2


Much of the literature on capital structure excludes Real Estate Investment Trusts (REITs) due mainly to the unique regulatory environment of these firms. As such, the issue of how REITs choose among different financing options when they raise external capital is largely unexplored. In this paper, we explore two issues on the capital structure of REITs: is there a relationship between market-to-book and leverage ratios, and, is the relationship between market-to-book and leverage ratio temporary or persistent. Our results suggest that REITs with historically high market-to-book ratio tend to have persistently high leverage ratio. In essence, REITs with high growth opportunity and high market valuation raise funds through debt issues. This finding, which is robust to various specifications and econometric tests, is contrary to the financing decisions of non-regulated firms. We attribute it to the special regulatory environment of REITs where, despite no apparent benefits to debt financing, management issues debt.


Capital structure Real Estate Investment Trusts (REITs) External capital Market-to-book Leverage ratio 

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.School of ManagementUnion Graduate CollegeSchenectadyUSA
  2. 2.Department of Finance and the Center for Real Estate and Urban Economic Studies (CREUES) at the School of BusinessUniversity of ConnecticutStorrsUSA

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