IMPACT OF GLOBAL FINANCIAL CRISIS ON THE CAPITAL STRUCTURE OF S-REITS

Abstract

This study investigates the impact of the Global Financial Crisis (GFC) on capital structure of Singapore REITs (S-REITs). This is done by examining the quarterly data from 24 S-REITs between 2005 Q1 and 2011 Q4 using time phased and full period panel regression models.

The analysis of leverage across S-REITs industries shows that S-REITs are turning towards debt financing and they are increasing their debt maturity profiles by switching to long-term debt. Further investigation through comparative analysis suggests that the average leverage ratios across the various S-REITs sector are converging towards a conservative level.

In the time-phased regression, the sample data is split into three time phases; Pre GFC, GFC and Post GFC. The regression results shows that size and asset tangibility have a positive and significant relationship with leverage. On the other hand, growth opportunity and profitability have a negative and significant impact on leverage. The results also show that share price performance is insignificant in explaining the leverage ratio in any of the periods.

In the full-period panel regression, multiplicative dummies were used to test for changes in the impact on leverage. It is observed that the impact of size, growth opportunity and share price performance on leverage were accentuated during the GFC period. Profit is found to have the strongest impact during the Post-GFC period. In summary, the signs of the determinants show that all the three capital structure theories are able to explain the capital structure of S-REITs at different periods.