Financial Flexibility and Manager–Shareholder Conflict: Evidence from REITs

Riddiough, Timothy J.; Steiner, Eva

doi:10.1111/1540-6229.12226

Cited by 34 publications

(28 citation statements)

References 95 publications

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“…We attribute the effect to likely be due to decreased credit rationing by banks, as we find no statistically significant relationship between the degree of public debt and leverage levels, i.e. finding no evidence to support debt capacity hypothesis, which is true for US REITs (Riddiough and Steiner, 2018). Additionally, our test for a possible sign of overinvestment problem did not support the notion of existence of such.…”

Section: Introductioncontrasting

confidence: 66%

Debt diversification and investments of European listed real estate companies

Zhukovskiy

Falkenbach

Bouchouicha

2020

JERER

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Purpose This paper aims to examine the relationship between the use of public debt and investment activity of European listed real estate companies. Design/methodology/approach Using a hand-collected sample of debt structures of 102 European public real estate companies, and using European Central Bank lending standards survey as a proxy for bank credit availability, the authors test a conditional hypothesis on the relationship between investment rates and the use of public debt during period of constrained bank lending environment in Europe. Findings The results show that ex ante diversification of debt allows retaining higher investment rates when the main source of debt, bank lending, is shrinking. The effect is statistically and economically significant and increases during times of tight bank lending constraints. The authors find no support to debt capacity explanation of the effect. They neither find support of the higher investment rates to be indicative of overinvestment problem. The results are robust to alternative model specifications and estimators. Research limitations/implications The empirical analysis is limited to Europe. Practical implications Investments and the growth of real estate companies depend on their ability to seize value-increasing opportunities that arise in the competitive markets. This paper evaluates the role of a diversified debt structure in this context. The results suggest that debt structure can have material importance for the investment activity of European listed real estate companies and issuance of public debt can help companies to counterbalance the negative effects of restricted bank loan supply on the investment levels. Originality/value The paper extends the literature on debt structures of listed real estate firms by considering the effect of debt diversification on investments.

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Section: Introductioncontrasting

confidence: 66%

Debt diversification and investments of European listed real estate companies

Zhukovskiy

Falkenbach

Bouchouicha

2020

JERER

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“…Existing papers are generally silent on the roles of debt capacity on capital structure decisions. In the case of REITs, for instance, Harrison et al (2011) assumed that high debt ratio is an indication of high debt capacity while Riddiough and Steiner (2018) related high debt ratio with low debt capacity. 4 As pointed out by Lemmon and Zender (2010) these assumptions are prone to misclassification of firms with large debt capacity but high current leverage as being financially flexible or firms with small debt capacity but little or no leverage as being financially constrained.…”

Section: Introductionmentioning

confidence: 99%

Debt Conservatism and Debt-Equity Choices: Evidence from REITs’ Unused Debt Capacity

Wong

2018

International Journal of Banking and Finance

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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.

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“…See, for example, Riddiough and Steiner (), who argue that limits to takeovers in EREITs leave shareholders vulnerable to managerial conflicts of interest. The study focuses on shareholder‐manager conflict over unused debt capacity, and finds that covenants contained in the unsecured debt that limit managerial discretion over unused debt capacity are valuable for EREIT shareholders.…”

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confidence: 99%

Shareholder Activism in REITs

Downs

Stráska

Waller

2018

Real Estate Economics

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Conventional wisdom suggests that shareholder activism in REITs is less prevalent than in other (non-REIT) public firms because of stronger barriers to hostile takeovers and potentially less undervaluation. Our results, however, suggest that the conventional wisdom does not hold. Specifically, we find that in 2006-2015, Equity REITs (EREITs) are as likely to be targeted by shareholder activists as non-EREITs. We also find that shareholder campaign characteristics and determinants, as well as their value consequences, appear similar for EREITs and non-EREITs. Given that this is the first study to examine shareholder activism in REITs, we raise several questions for future research."No recent development has influenced firms' strategic and financial decision-making as profoundly as the surge in shareholder activism following the global financial crisis." 1

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Financial Flexibility and Manager–Shareholder Conflict: Evidence from REITs

Cited by 34 publications

References 95 publications

Debt diversification and investments of European listed real estate companies

Debt diversification and investments of European listed real estate companies

Debt Conservatism and Debt-Equity Choices: Evidence from REITs’ Unused Debt Capacity

Shareholder Activism in REITs

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