Debt Raising and Refinancing by Japanese REITs: Information Content in a Credit Crunch

Debt Raising and Refinancing by Japanese REITs: Information Content in a Credit Crunch This paper examines the information content of debt raising and refinancing activities of Real Estate Investment Trusts (REITs) in normal and tight credit markets. Based on a sample of 340 debt announcements made by REITs in Japan (J-REITs) between 2002 and 2011, we observe that they are associated with a positive stock price reaction, averaging 1.05 % over a 4-day window. Stratifying the sample into debt raising and debt refinancing, we find strong evidence that the positive economic gains associated with debt announcements flowed from the pool of debt refinancing announcements. They registered a significant mean return of 1.20 % over the 4-day window, as opposed to 0.07 % for the pool of debt raising activities. Further investigation shows that the positive market reaction to debt refinancing is more pronounced during the credit crunch of 2007 to 2009. Although debt refinancing does not lead to any change in the firm’s capital structure, it still contains valuable information about the firm’s prospect, especially in tight credit markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Debt Raising and Refinancing by Japanese REITs: Information Content in a Credit Crunch

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-014-9459-y
Publisher site
See Article on Publisher Site

Abstract

This paper examines the information content of debt raising and refinancing activities of Real Estate Investment Trusts (REITs) in normal and tight credit markets. Based on a sample of 340 debt announcements made by REITs in Japan (J-REITs) between 2002 and 2011, we observe that they are associated with a positive stock price reaction, averaging 1.05 % over a 4-day window. Stratifying the sample into debt raising and debt refinancing, we find strong evidence that the positive economic gains associated with debt announcements flowed from the pool of debt refinancing announcements. They registered a significant mean return of 1.20 % over the 4-day window, as opposed to 0.07 % for the pool of debt raising activities. Further investigation shows that the positive market reaction to debt refinancing is more pronounced during the credit crunch of 2007 to 2009. Although debt refinancing does not lead to any change in the firm’s capital structure, it still contains valuable information about the firm’s prospect, especially in tight credit markets.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Feb 19, 2014

References

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