Optimal leverage strategy: Capital structure in real estate investments

Cannaday, Roger E.; Yang, Tyler T.

doi:10.1007/bf00217395

Cited by 15 publications

(10 citation statements)

References 5 publications

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“…The determinants of leverage choice in commercial property investment was researched by Gau and Wang (1990) by using property transaction data from USA, and the significant determinants included currency ratio, property depreciation deduction, etc. Cannaday and Yang (1996) tried to find out the optimal leverage ratio for investment in income producing commercial property. Although no empirical tests were performed in their study, the optimal capital structure was demonstrated as trade-off between characteristics of investors such as tax shield and holding period, etc.…”

Section: Literature Of Property Firms' Financial Behaviourmentioning

confidence: 99%

An explanation of capital structure of China's listed property firms

Liang

Li²,

Song

2014

Property Management

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If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to investigate the determinants of the capital structure of listed property firms in China. Design/methodology/approach -The study is based on quantitative methods such as dynamic panel data models and a panel data set containing financial and accounting data for all listed property companies from 2006 to 2010 in China. Findings -The findings confirm that the state-own shares, the fixed asset values, the total size of assets and profitability have a positive and significant impact on the leverage ratio of listed property firms in China. The negative impact of the tax shields and the currency ratio, and significant impact of state-own shares on capital structure cannot be explained by existing capital structure theory but the unique property market regulation environment and market conditions in China.Research limitations/implications -The findings confirm the applicability of trade-off theory (except for the correlation between leverage and the tax shield) on property companies in China. They also highlight the importance of government policies and special market conditions in explaining the financing behaviour of property companies in transaction countries like China.Practical implications -Complimentary policies should be established along with property market restriction policies to offset their unequal negative effect on property companies with less state-owned shares. Furthermore, government should invest efforts to eliminate the discrimination credit treatment of banks against property companies with non-existent or few state-owned shares. Originality/value -The special financial behaviour of China's property firms and the unique financial and property market conditions highlight the necessity of researching the capital structure of listed property firms in China. However, most of the existing literature focuses on the company financial behaviour in developed countries, and very few studies have been done concerning property firms' financing behaviour in emerging economies such as China, and this research prospects to fill this blank.

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Section: Literature Of Property Firms' Financial Behaviourmentioning

confidence: 99%

An explanation of capital structure of China's listed property firms

Liang

Li²,

Song

2014

Property Management

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“…As demand for leverage continues, demand for property will also increase if the cost for leverage not exceeding the expected rate of return. Since the supply for real estate is constrained due to development lag, it will increase the asset value, at least for a short term.On the return on equity, as shown by [11], within the context of the discounted cash-flow model, the use of leverage will lower the amount equity needed for the real estate investment and increase the size of tax shelter only if the investment'scash-flowshow positive leverage.…”

Section: Iiresearch Methodsmentioning

confidence: 99%

Digital Technology And The Real Estate Industry

Lizam

2019

Sinergi J. Ilm. Ilmu Manaj

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This paper briefly summarises the extent of the technological impact on the real estate industry, in particular,digital technology. As real estate industry is naturally characterized by several disadvantages in comparison to other industry, understanding the impact ofdigital technology is crucial to the industry on whether this technology will distrust the industry or complement the business process. The emergence of PropTech start-ups has made the industry players to re-evaluate its organisational strategy toalign the business process to a possible threat to the present business model.Prior studies suggest that PropTech comes in there waves in which each waveis characterized by the respective period advancement in digital technology. Several studies also indicate that digital technology may not entirely disrupt the industry but do have a significant potential to act as a complement to the industry in improving its productivity and efficiency.

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“…Most real estate developers hold debt (Allen , Riddiough 1999, Bookout ), even though in the previous section the developer invests pure equity . In order to explain a significant amount of debt financing in the real estate market from the capital structure perspective, Gau and Wang () and Cannaday and Yang () introduce taxes and Mcdonald () introduces heterogeneous expectations between a leveraged investor and a debt provider. Without these frictions, the value of a development project in this section is irrelevant to a developer's financial structure; the developer will obtain a construction loan in the form of a single homogeneous class of debt .…”

Section: The Model In the Presence Of A Defaultable Loanmentioning

confidence: 99%

“…The fair market value of risky debt in is less than that of riskless debt and the debt holder achieves zero profits in a perfectly competitive market (Mella‐Barral and Perraudin , Mauer and Sarkar ). Note that our approach can be distinguished from that of Gau and Wang () and Cannaday and Yang (), who examine an optimal financial structure by analyzing the benefits and costs of debt financing in real estate investments. Now a leveraged developer's strategy can be analyzed with exogenous m .…”

Section: The Model In the Presence Of A Defaultable Loanmentioning

confidence: 99%

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The Leveraged City

You

2014

Real Estate Economics

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This study analyzes the effects of leverage on real estate developments. In urban growth models, a real estate developer converts land from agricultural to urban use. At the time at which such a land conversion occurs, a developer who maximizes the equity value obtains a defaultable construction loan at fair market value. By presenting a more general form of the irreversibility premium of Capozza and Helsley, I show that, with more leverage, uncertainty is less of a deterrent to the land conversion. Under uncertainty, a leveraged developer exercises the land conversion option earlier than an unleveraged developer would. Leverage expands equilibrium city size.

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Optimal leverage strategy: Capital structure in real estate investments

Cited by 15 publications

References 5 publications

An explanation of capital structure of China's listed property firms

An explanation of capital structure of China's listed property firms

Digital Technology And The Real Estate Industry

The Leveraged City

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