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Capital Structure Theory: Evidence from European Property Companies' Capital Offerings
Author(s) -
Brounen Dirk,
Eichholtz Piet M.A.
Publication year - 2001
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1080-8620.00025
Subject(s) - capital structure , leverage (statistics) , equity (law) , economics , monetary economics , debt , corporate tax , stock price , financial economics , common stock , share price , double taxation , business , finance , tax avoidance , stock exchange , paleontology , context (archaeology) , machine learning , series (stratigraphy) , computer science , political science , law , biology
This study examines the stock price reactions on announcements of both equity and debt offerings by European property companies. The unique setting in which corporate tax rates vary between different countries enables us to test established theories in the field of capital structure. In accordance with theory, we find a negative price reaction on equity offering announcements, which is less severe for low‐tax countries and positive price reactions on the announcements of debt offerings. Besides tax arguments, we also test alternative explanations by analyzing variations in stock reactions based on differences in the relative size of the issue, the pre‐offer leverage, the underlying property types, and operational performance. The results show that corporate taxation, issue size, and operational performance are significant explanatory factors in the negative price reactions.