The impact of debt offerings on REIT long-run performance

초록

We evaluate real estate investment trust (REIT) long-run return performance after debt issuances. Our results suggest no abnormal returns for REITs following debt issues. Only REITs issuing debt in periods of increased debt issuing activity experience positive abnormal returns. Using a REIT-specific factor model, we observe that only value-weighted portfolios show positive abnormal returns, suggesting that larger REITs perform better after debt issues relative to other REITs. We provide support for the pecking-order and the market-timing theories of capital structure. REIT managers take fair advantage of favorable market conditions to raise capital and issue debt as the first choice of the pecking order.