An empirical investigation on the incidence of secured debt

Abstract

This paper examines the incidence of secured debt amongst UK property companies. The empirical evidence shows that nearly three quarters of all outstanding loans of the quoted property sector are issued on a secured basis. Results of the tobit regressions appear to suggest that small and risky property companies do not have much choice but to issue secured debt. The evidence also shows that the incidence of secured debt is positively related to the company's involvement in property trading and development activities. The study further indicates that secured debt plays an important role in reducing borrowing costs and expanding debt capacity of property companies. The signalling role of secured debt is, however, not substantiated.