DOES CAPITAL MARKET DEVELOPMENT INCREASE LEVERAGE? EVIDENCE FROM PROPERTY COMPANIES

Abstract

This dissertation purports to study the impact of the capital market development in a country on the leverage decisions of its property firms. Analysis of data from 579 real estate companies in 13 developed and developing countries has revealed that overall, developing countries in the sample have less mature capital markets as well as much lower debt ratios than those in developed ones. For the sample as a whole, development in the debt capital market positively affects the use of debt while development in the equity capital market has a reverse influence. However, when the set of developed countries are examined separately from developing ones, the impact of both debt and equity markets appears to be unimportant. On the other hand, the advancement in both systems over time results in higher debt ratios for property firms in developing countries. Besides, firm size, growth opportunities, property asset intensity, profitability and corporate tax rate are other factors found to have significant influences on debt capacities of real estate corporation in the sample.