IMPACT OF REFINANCING RISKS DURING A CREDIT CRISIS : A JAPANESE REITS PERSPECTIVE

Abstract

This study investigates the impact of leverage and refinancing risk on REIT Price over NAV (P/NAV) and the changes in the effect during a crisis period. Semi-annual data from 2006 H2 to 2010 H1 on Japanese REITs are used to run pooled and paneled data regressions. The motivation of this study is driven by the financial crisis, which highlighted the negative effects of leverage and the refinancing difficulties faced by REITs during a credit crunch.

The regressions reveal that leverage has a persistently negative impact on REIT P/NAV throughout the study period. Short-term financing has shown to exert a similar negative impact on REIT P/NAV throughout the study period. However, short-term financing has interactions with the crisis period dummy, which exerts a positive impact on P/NAV. The result, which is interpreted as the widening of the price to NAV ratio, indicates the presence of refinancing risk during crisis period.