On the Determinants of REIT Capital Structure: Evidence from around the World

  • Yunus Yasin Dogan
  • Chinmoy Ghosh
  • Milena PetrovaEmail author


Using a sample of REITs from twelve countries around the world, we examine the determinants of REIT capital structure. We investigate firm-specific and country-specific factors, and account for the unique legal requirements that REITs face in each country. Our results suggest that legal requirements are significant determinants of the capital structure of REITs. Specifically, we find that REITs have the highest book debt ratio in countries where they must pay out most of their operating income. This result implies that REITs prefer debt financing to equity financing. Additionally, we find that in countries with no payout requirement, but leverage restrictions, REITs have lower book leverage, which suggests that internal financing is preferred to external financing. Our findings also indicate that country-specific factors do not have significant impact on REIT leverage.


REITs Capital structure Regulation 



  1. Baker, M., & Wurgler, J. (2002). Market timing and capital structure. Journal of Finance, 57(1), 1–32.Google Scholar
  2. Barclay, M. J., Heitzman, S. M., & Smith, C. W. (2013). Debt and taxes: evidence from the real estate industry. Journal of Corporate Finance, 20, 74–93.Google Scholar
  3. Berger, A. N., & Udell, G. F. (1994). Did risk-based capital allocate bank credit and cause a credit crunch in the United States? Journal of Money, Credit, and Banking, 26(August), 585–628.Google Scholar
  4. Boudry, W. I., Kallberg, J. G., & Liu, C. H. (2010). An analysis of REIT security issuance decisions. Real Estate Economics, 38(1), 91–120.Google Scholar
  5. Brounen, D., & Eichholtz, P. M. A. (2001). Capital structure theory: evidence from European property companies’ capital offerings. Real Estate Economics, 29(4), 615–632.Google Scholar
  6. Brounen, D., Kok, N., & Ling, D. C. (2012). Shareholder composition, share turnover, and returns in volatile markets: the case of international REITs. Journal of International Money and Finance., 31, 1867–1889.Google Scholar
  7. Brown, D. T., & Riddiough, T. J. (2003). Financing choice and liability structure of real estate investment trusts. Real Estate Economics, 31(3), 313–346.Google Scholar
  8. Cashman, G. D., Harrison, D. M., & Sheng. (2015). Political risk and the cost of capital in Asia-Pacific property markets. International Real Estate Review, 18(3), 331–364.Google Scholar
  9. Cashman, G. D., Harrison, D. M., & Seiler, M. J. (2016). Capital structure and political risk in Asia-Pacific real estate markets. Journal of Real Estate Finance and Economics, 53(2), 115–140.Google Scholar
  10. Chikolwa, B. (2011). Investigating the capital structure of A-REITs. Journal of Real Estate Literature, 19(2), 391–411.Google Scholar
  11. De Jong, A., Kabir, R., & Nguyen, T. T. (2008). Capital structure around the world: the roles of firm- and country specific determinants. Journal of Banking & Finance, 32(9), 1954–1969.Google Scholar
  12. Delcoure, N., & Dickens, R. N. (2004). REIT and REOC systematic risk sensitivity. Journal of Real Estate Research, 26(3), 237–254.Google Scholar
  13. Demirgüc-Kunt, A., & Maksimovic, V. (1996). Stock market development and firm financing choices. World Bank Economic Review, 10(2), 341–369.Google Scholar
  14. Demirgüc-Kunt, A., & Maksimovic, V. (1999). Institutions, financial markets and firm debt maturity. Journal of Financial Economics, 54(3), 295–336.Google Scholar
  15. Deng, K.K., Wong, S.K., & Chau, K.W. (2018). Institutions and capital structure: the case of chinese property firms. The Journal of Real Estate Finance and Economics, 56(3), 352–385.Google Scholar
  16. Dolde, W., & Knopf, J. D. (2009). Insider ownership, risk, and leverage in REITs. The Journal of Real Estate Finance and Economics, 41(4), 412–432.Google Scholar
  17. Erol, I., & Tirtiroglu, D. (2011). Concentrated ownership, no dividend payout requirement and capital structure of REITs: Evidence from Turkey. The Journal of Real Estate Finance and Economics, 43(1), 174–204.Google Scholar
  18. Ertugrul, M., & Giambona, E. (2011). Property segment and REIT capital structure. Journal of Real Estate Finance and Economics, 43, 505–526.Google Scholar
  19. EY. (2016). Global perspectives: 2016 REIT report. 2016 EYGM Limited.Google Scholar
  20. Fama, E. F., & French, K. R. (2002). Testing trade-off and pecking order predication about dividends and debt. Review of Financial Studies, 15(1), 1–33.Google Scholar
  21. Fan, J., Titman, S., & Twite, G. (2012). An international comparison of capital structure and debt maturity choices. Journal of Financial and Quantitative Analysis, 47(1), 23–56.Google Scholar
  22. Feng, Z., Ghosh, C., & Sirmans, C. F. (2007). On the capital structure of real estate investment trusts (REITs). Journal of Real Estate Finance and Economics, 34(1), 81–105.Google Scholar
  23. Giacomini, E., Ling, D. C., & Naranjo, A. (2015). Leverage and returns: a cross-country analysis of public real estate markets. Journal of Real Estate Finance and Economics, 51(2), 125–159.Google Scholar
  24. Giambona, E., Harding, J. P., & Sirmans, C. F. (2008). Explaining the variation in REIT capital structure: the role of asset liquidation value. Real Estate Economics, 36(1), 111–137.Google Scholar
  25. Han, B. (2006). Insider ownership and firm value: evidence from real estate investment trusts. Journal of Real Estate Finance and Economics, 32(4), 471–493.Google Scholar
  26. Hardin III, W. G., & Wu, Z. (2010). Banking relationships and REIT capital structure. Real Estate Economics, 38, 257–284.Google Scholar
  27. Harrison, D. M., Panasian, A. C., & Seiler, M. J. (2011). Further evidence on the capital structure of REITs. Real Estate Economics, 39(1), 133–166.Google Scholar
  28. Maris, B. A., & Elayan, A. F. (1990). Capital structure and the cost of capital for untaxed firms: the case of REITs. Real Estate Economics, 18(1), 22–39.Google Scholar
  29. Morri, G., & Beretta, C. (2008). The capital structure determinants of REITs. Is it a peculiar industry? Journal of European Real Estate Research, 1(1), 6–57.Google Scholar
  30. Morri, G., & Cristanziani, F. (2009). What determines the capital structure of real estate companies? An analysis of the EPRA/NAREIT Europe index. Journal of Property Investment & Finance, 27(4), 318–372.Google Scholar
  31. Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147–175.Google Scholar
  32. Myers, S. C. (1984). The capital structure puzzle. Journal of Finance, 39(3), 575–592.Google Scholar
  33. Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221.Google Scholar
  34. Niskanen, J., & Falkenback, H. (2012). European listed real estate: the capital structure perspective. Nordic Journal of Surveying and Real Estate Research, 9(1), 76–97.Google Scholar
  35. Ooi, J. T. L., Ong, S.-E., & Li, L. (2008). An analysis of the financing decision of REITs: the role of market timing and target leverage. Journal of Real Estate Finance and Economics, 40(2), 130–160.Google Scholar
  36. Ott, S. H., Riddiough, T. J., & Yi, H. C. (2005). Finance, investment and investment performance: Evidence from the REIT sector. Real Estate Economics, 33(1), 203–235.Google Scholar
  37. Pavlov, S., Steiner, A. E., & Wachter, S. (2015). Macroeconomic risk factors and the role of mispriced credit in the returns from international real estate securities. Real Estate Economics, 43(1), 241–270.Google Scholar
  38. Rajan, R., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. Journal of Finance, 50(5), 1421–1460.Google Scholar
  39. Rovolis, A., & Feidakis, A. (2013). Evaluating the impact of economic factors on REITs’ capital structure around the world. Journal of Property Investment & Finance, 32(1), 5–20.Google Scholar
  40. Shyam-Sunder, L., & Myers, S. C. (1999). Testing static tradeoff against pecking order models of capital structure. Journal of Financial Economics, 51(2), 219–244.Google Scholar
  41. Titman, S., & Wessels, R. (1988). The determinants of capital structure. Journal of Finance, 43(1), 1–19.Google Scholar
  42. Welch, I. (2011). Two common problems in capital structure research: the financial debt-to-asset ratio and issuing activity versus leverage changes. International Review of Finance, 11(1), 1–17.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • Yunus Yasin Dogan
    • 1
  • Chinmoy Ghosh
    • 2
  • Milena Petrova
    • 3
    Email author
  1. 1.INVESDO Grundbesitz GmbHLangenfeldGermany
  2. 2.School of BusinessUniversity of ConnecticutStorrsUSA
  3. 3.Whitman School of ManagementSyracuse UniversitySyracuseUSA

Personalised recommendations