Financing decisions of U.S. REITs: A capital market perspective

Abstract

This thesis studies the financing decisions of U.S. REITs from a capital market perspective, with an emphasis on their market-timing behavior.Specifically, we find that REITs time their equity offering with periods of buoyant valuation and sharp run-ups in the stock price in the market, and issue debt securities when the long-term rate is low and the credit spread is narrow, while both debt and equity securities are offering when investors are more risk-averse. In addition, REITs also time debt market conditions by means of debt-maturity choices: choosing long-term debt over short-term ones when long-term rate and credit-spread is low, and current term spread is high.We conclude that market-timing hypothesis better describe REITs financing activities than either the trade-off theory or the pecking-order hypothesis. Further, these evidences about market-timing from a particular industry which is a superior testing ground provide strong empirical support to the development of market-timing theory.