EQUITY/DEBT ISSUANCE ANNOUNCEMENT AND STOCK PRICE: EVIDENCE FROM S-REIT

Abstract

Real Estate Investment Trusts (REITs) have unique characteristics that allows them to be exempted from tax, and thus, they do not enjoy tax benefits when utilising debt. Furthermore, REITs in Singapore are subjected to 45% maximum gearing limit set by the Monetary Authority of Singapore (MAS) and therefore, equity issuance is another major financing option for REITs in Singapore. This research paper focuses on equity and debt issues of all Singapore based REITs since the first S-REIT was listed in 2002. By analysing 170 equity issuances and 75 debt issuances made by REITs listed in the Singapore Stock Exchange between 2002 and 2018, this paper measures the stock price reaction following the announcement of these equity and debt issuances. Previous studies on the valuation effect of both equity and debt issuances generally show that equity issuance will lead to a negative abnormal return on share prices whereas debt issuances, will lead to a positive abnormal return following the issuance, and the market will react more positively towards debt issuances than that of equity issuances. Various research methodologies such as multiple regressions, event studies Difference in Difference and Regression Discontinuity (RD) were used in this research to test the robustness of the data. Examining S-REITs data from 2002 to 2018, the results shown that there are clear negative abnormal returns following the announcement of equity and debt issuances. The raw data shows a negative correlation between equity/debt issuances and the stock returns of REITs. It also shows that the effect of debt issuance on the stock return is larger than that of equity issuance. A more rigorous testing using

iv RD further substantiates that equity and debt issuances will lead to negative abnormal returns on the stock returns of REITs in Singapore, with the impact of equity issuance being larger than that of debt.