Open AccessDebt Conservatism and Debt-Equity Choices: Evidence from REITs’ Unused Debt Capacity
Author(s) -
Woei Chyuan Wong
Publication year - 2018
Publication title -
s and p : sound and pictures
Language(s) - English
Resource type - Journals
ISSN - 1675-722X
DOI - 10.32890/ijbf2017.13.1.8496
Subject(s) - debt , monetary economics , internal debt , economics , capital structure , debt to equity ratio , external debt , conservatism , debt ratio , equity (law) , business , financial system , financial economics , finance , population , demography , sociology , politics , political science , law , nonprobability sampling
We infer debt conservatism behavior by examining how REITs adjust towards their debt capacity following a capital issue or repurchase decision. It is observed that REITs with high unused debt capacity tend to issue equity which renders them more underleveraged for at least two consecutive years. These high debt buffer REITs also tend to converge slowly towards their debt capacity through repurchase decisions and hold significantly higher unused debt facilities than their low buffer counterparts. These findings are robust to a variety of robustness checks and cannot be explained by the traditional pecking order and trade-off theories of capital structure.