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Decomposing Industry Leverage: the Special Cases of Real Estate Investment Trusts and Technology & Hardware Companies

Author

Listed:
  • Breuer, Wolfgang

    (RWTH Aachen University)

  • Nguyen, Linh.D

    (Banking University of Ho Chi Minh City)

  • Steininger, Bertram

    (Department of Real Estate and Construction Management, Royal Institute of Technology)

Abstract

Different industries exhibit significantly different leverage – companies in the REIT and technology/hardware sectors are extreme examples. The leverage ratio is twice as high with 50% for REITs as for non-real estate firms with around 25% in the U.S.; whereas the technology/hardware sector has the lowest ratio with around 17%. We theoretically and em-pirically analyse their differences. By decomposing the difference into three channels, we find that the industry-specific channel explains around 67% for REITs and 68% for technology/hard¬ware firms; the value-based channel is mostly responsible for the remaining part. When taking non-linear influences of extreme values into account, the relevance of the industry-specific channel is considerably reduced.

Suggested Citation

  • Breuer, Wolfgang & Nguyen, Linh.D & Steininger, Bertram, 2023. "Decomposing Industry Leverage: the Special Cases of Real Estate Investment Trusts and Technology & Hardware Companies," Working Paper Series 23/3, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    • Handle: RePEc:hhs:kthrec:2023_003
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    More about this item

    Keywords

    capital structure; leverage ratio; real estate investment trust (REIT); technology; hardware; software; and equipment firms; coefficient-based difference; value-based difference; intercept-based difference decomposition model;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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