The effects of the global financial crisis on the capital structure of EPRA/NAREIT Europe index companies

Abstract

Purpose – The purpose of this paper is to test whether the financial crisis has affected the capital structure of real estate companies in Europe and whether these impacts can be studied utilizing the variables traditionally used by the trade-off and pecking-order theories to explain the capital structure of companies. Design/methodology/approach – The study uses a fixed-effect panel regression analysis and a sample composed of companies included in the EPRA/NAREIT Europe Index. The effect of the financial crisis has been accounted for within the model by means of a dummy variable. Findings – The global financial crisis did have an impact on the capital structure of companies and the main variables traditionally used by the trade-off and pecking order theories proved to be suitable in explaining the capital structure of real estate companies. Real estate investment trusts are, on average, more leveraged than traditional real estate companies due to their special regulatory status. Research limitations/implications – The study is limited to the European market and UK companies in particular account for a large part of the sample. In addition, major regulatory differences between the various European countries are not taken into account in the model. Originality/value – Similar studies have been performed for the US and Australian market. However, the impact of the global financial crisis has not been traditionally considered in these studies.

Trade-Off Theory Versus Pecking Order Theory: Ghanaian Evidence

“…Furthermore, our result is not in agreement with other research (e.g., Burgstaller & Wagner, 2015;Forte et al, 2013;Morri & Parri, 2017;Psillaki & Daskalakis, 2009;Sogorb-Mira, 2005). However, this present result backs the one obtained by Morri and Artegiani (2015).…”

“…Accordingly, both H3 and H10 are accepted. The positive relation observed in this Ghanaian study corroborates other studies, including Michaelas et al (1999), Cassar and Holmes (2003), Degryse et al (2012), Deesomsak et al (2004), Psillaki and Daskalakis (2009), La Rocca et al (2011), Newman et al (2013, Morri and Artegiani (2015), and Matias and Serrasqueiro (2017).…”

“…Thus, the result agrees with H1 but rejects H8. This study's result agrees with Karadeniz et al (2009) and Serrasqueiro and Nunes (2014) 2013), Morri and Artegiani (2015), Burgstaller and Wagner (2015), and Matias and Serrasqueiro (2017). Nonetheless, it does not support the point of view of other studies (e.g., Bhaird & Lucey, 2010;Jang et al, 2008).…”

“…If it is not ample, they then turn to debt financing. Previous studies on SMEs also corroborate a negative connection between profitability and debt (see Cassar & Holmes, 2003;Chittenden et al, 1996;Degryse et al, 2012;Michaelas et al, 1999;Morri & Artegiani, 2015;Newman et al, 2013;Sogorb-Mira, 2005). Therefore, we posit the following hypothesis: Hypothesis 1 (H1): Profitability is negatively related to debt.…”

“…The TOT supposes that companies with high growth opportunities might face higher costs of financial distress and hence prefer equity financing. While employing more debt increases the benefits of tax shields that a firm could enjoy, it also increases the likelihood of the firm going bankrupt, which may cause future growth opportunities to fall (Cole, 2013;Daskalakis et al, 2017;Morri & Artegiani, 2015). Thus, businesses are more unwilling to utilize debt in order not to get their future growth reduced.…”