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Debt diversification and investments of European listed real estate companies

Debt diversification and investments of European listed real estate companies This paper aims to examine the relationship between the use of public debt and investment activity of European listed real estate companies.Design/methodology/approachUsing a hand-collected sample of debt structures of 102 European public real estate companies, and using European Central Bank lending standards survey as a proxy for bank credit availability, the authors test a conditional hypothesis on the relationship between investment rates and the use of public debt during period of constrained bank lending environment in Europe.FindingsThe results show that ex ante diversification of debt allows retaining higher investment rates when the main source of debt, bank lending, is shrinking. The effect is statistically and economically significant and increases during times of tight bank lending constraints. The authors find no support to debt capacity explanation of the effect. They neither find support of the higher investment rates to be indicative of overinvestment problem. The results are robust to alternative model specifications and estimators.Research limitations/implicationsThe empirical analysis is limited to Europe.Practical implicationsInvestments and the growth of real estate companies depend on their ability to seize value-increasing opportunities that arise in the competitive markets. This paper evaluates the role of a diversified debt structure in this context. The results suggest that debt structure can have material importance for the investment activity of European listed real estate companies and issuance of public debt can help companies to counterbalance the negative effects of restricted bank loan supply on the investment levels.Originality/valueThe paper extends the literature on debt structures of listed real estate firms by considering the effect of debt diversification on investments. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Real Estate Research Emerald Publishing

Debt diversification and investments of European listed real estate companies

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1753-9269
DOI
10.1108/jerer-06-2020-0035
Publisher site
See Article on Publisher Site

Abstract

This paper aims to examine the relationship between the use of public debt and investment activity of European listed real estate companies.Design/methodology/approachUsing a hand-collected sample of debt structures of 102 European public real estate companies, and using European Central Bank lending standards survey as a proxy for bank credit availability, the authors test a conditional hypothesis on the relationship between investment rates and the use of public debt during period of constrained bank lending environment in Europe.FindingsThe results show that ex ante diversification of debt allows retaining higher investment rates when the main source of debt, bank lending, is shrinking. The effect is statistically and economically significant and increases during times of tight bank lending constraints. The authors find no support to debt capacity explanation of the effect. They neither find support of the higher investment rates to be indicative of overinvestment problem. The results are robust to alternative model specifications and estimators.Research limitations/implicationsThe empirical analysis is limited to Europe.Practical implicationsInvestments and the growth of real estate companies depend on their ability to seize value-increasing opportunities that arise in the competitive markets. This paper evaluates the role of a diversified debt structure in this context. The results suggest that debt structure can have material importance for the investment activity of European listed real estate companies and issuance of public debt can help companies to counterbalance the negative effects of restricted bank loan supply on the investment levels.Originality/valueThe paper extends the literature on debt structures of listed real estate firms by considering the effect of debt diversification on investments.

Journal

Journal of European Real Estate ResearchEmerald Publishing

Published: Jun 4, 2021

Keywords: Investments; Capital structure; European listed real estate; Debt diversification; Debt structure

References