Premium
Capital Structure Theory and REIT Security Offerings
Author(s) -
HOWE JOHN S.,
SHILLING JAMES D.
Publication year - 1988
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1988.tb02616.x
Subject(s) - real estate investment trust , monetary economics , equity (law) , debt , capital structure , business , stock price , stock (firearms) , empirical evidence , economics , financial system , financial economics , finance , real estate , mechanical engineering , paleontology , philosophy , epistemology , series (stratigraphy) , political science , law , biology , engineering
ABSTRACT In this paper, we examine the stock price reactions to announcements of new security offerings by Real Estate Investment Trusts (REITs). REITs offer a unique setting in which to study these events because they do not pay taxes at the firm level. Theory suggests that the net tax gain to corporate borrowing is unambiguously negative for a REIT. Contrary to some recent studies, however, we find a positive stock price reaction to debt offerings, while the negative equity‐issuance effect is preserved. Further empirical evidence lends support to signalling as the explanation for the positive significant debt‐issuance effect.