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Do changes in credit ratings of REITs affect their capital structure decisions?

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  • Qing Li
  • Yuen Leng Chow
  • Seow Eng Ong

Abstract

Existing research has highlighted the high leverage ratio of Real Estate Investment Trusts (REITs). To the extent that credit rating is important to REITs when sourcing for capital from the public debt markets, our paper investigates the effect of changes in REIT credit ratings on capital structure decisions while controlling for endogeneity effects. Our results indicate that REITs that face the prospect of an imminent credit rating downgrade issue approximately 11% less debt net of equity as a percentage of total assets than other REITs. This effect is asymmetric in that positive rating outlooks do not have a significant impact on REIT capital structure activities.

Suggested Citation

  • Qing Li & Yuen Leng Chow & Seow Eng Ong, 2014. "Do changes in credit ratings of REITs affect their capital structure decisions?," Journal of Property Research, Taylor & Francis Journals, vol. 31(3), pages 264-285, September.
    • Handle: RePEc:taf:jpropr:v:31:y:2014:i:3:p:264-285
    DOI: 10.1080/09599916.2013.848225
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    Cited by:

    1. Qing Li & David C. Ling & Masaki Mori & Seow Eng Ong, 2020. "The Wealth Effects of REIT Property Acquisitions and Dispositions: the Creditors’ Perspective," The Journal of Real Estate Finance and Economics, Springer, vol. 60(3), pages 308-337, April.
    2. Jianfu Shen & Kwong Wing Chau, 2022. "The Effect of Access to the Public Debt Market on Corporate Financing Decisions: The Case of REITs," Sustainability, MDPI, vol. 14(13), pages 1-19, June.
    3. Versmissen, J. & Zietz, J., 2017. "Is there a leverage target for REITs?," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 57-69.

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