Financing Choice and Liability Structure of Real Estate Investment Trusts

We conduct an analysis of public financial offerings of equity Real Estate Investment Trusts (REITs), with a focus on liability structure effects and whether or not firms target longer-run debt ratios. Our major findings are that (1) proceeds from equity offers are more likely to fund investment, whereas public debt offer proceeds are typically used to reconfigure the liability structure of the firm; (2) public debt issuers are often capital constrained and target total leverage ratios to retain an investment grade credit rating; and (3) the preoffer liability structure affects the issuance choice decision, in that firms with higher preoffer levels of secured (unsecured) debt tend to issue equity (public debt). Other notable findings are that the market for public REIT debt is integrated with the broader debt markets and that higher credit quality firms issue longer-maturing bonds.     

REIT Capital Structure Choices: Preparation Matters

Sun, Titman and Twite find that capital structure risks, namely, high leverage and a high share of short‐term debt, reduced the cumulative total return of U.S. REITs in the 2007–2009 financial crisis. We find that mitigating capital structure risks ahead of the crisis by reducing leverage and extending debt maturity in 2006 was associated with a significantly higher cumulative total return 2007–2009, after controlling for the levels of those variables at the start of the financial crisis. We further identify two systematic cross‐sectional differences between those REITs that reduced capital structure risks prior to the financial crisis and those that did not: the exposure to capital structure risks and the strength of corporate governance. On balance, our findings are consistent with the interpretation of risk‐reducing adjustments to capital structure ahead of the crisis as a component of managerial skill and discipline with significant implications for firm value during the crisis.     

Banking Relationships and REIT Capital Structure

This article examines the evolution of real estate investment trust (REIT) capital structure in the new REIT era with a focus on the effects of banking relationships on REIT capital structure. Using a unique sample of REITs from 1992 to 2003, we find that, after controlling for firm characteristics, REITs with banking relationships are more likely to obtain long‐term debt ratings and subsequently issue public debt. Moreover, REITs with banking relationships tend to use less secured debt and have lower leverage. These findings support the notion that banking relationships facilitate REITs' access to the public debt markets and help explain why REITs shift from traditional mortgage financing to bank debt and public capital market financing. The results also support the proposition that firm leverage should be positively related to the amount of a firm's secured debt.     

Explaining the Variation in REIT Capital Structure: The Role of Asset Liquidation Value

We test the Shleifer-Vishny hypothesis that asset liquidation values influence both firm leverage and the choice of debt maturity. Using panel data on real estate investment trusts, we estimate a simultaneous equation model and find that firms specializing in the most (least) liquid assets use more (less) leverage and longer (shorter) maturities. The evidence also suggests that, for REITs, debt maturity and leverage are substitutes, consistent with the theory and predictions of Barclay, Marx and Smith.     

Inside Ownership, Risk Sharing and Tobin's q-Ratios: Evidence from REITs

We investigate relations among inside ownership, managerial expenses, risk sharing and equity valuations. Our engine of analysis—Real Estate Investment Trusts (REITs)—provides a unique and rich framework for analysis since we can calculate extremely accurate measures of asset replacement costs, and hence relative valuation (Tobin's q ). Further, the nature of the financial statements allows us to examine the impact of insider ownership on agency costs since we can accurately measure the costs of the entire management team. Our results show that firms with greater insider holdings tend to invest in assets with lower systematic risk and use less debt in their capital structure. At the same time, managerial expenses are lower as inside ownership increases. Finally, higher levels of insider ownership are associated with higher relative valuation as measured by both higher premiums to net asset value and higher multiples of cash flows. The results have implications for the design of optimal management contracts for both REITs and firms in general.     

Debt Capacity of Real Estate Collateral

We study whether real estate assets have a greater positive influence on firm leverage than other tangible assets. Using a large sample of COMPUSTAT firms, we find a significant positive relation between tangibility and leverage in general, and the relation is strongest for real estate collateral. Furthermore, we find that the relation holds only for credit‐constrained firms, i.e., those likely to highly value the additional borrowing capacity of real estate. Our results imply that knowing the composition of a firm's tangible assets is important in understanding its leverage. Our findings could help explain why real estate investment trusts are relatively highly leveraged, even though debt offers them no tax benefit.     

Social networking relationships,firm‐specific managerial experience and firm performance in a transition economy: A comparative analysis of family owned and nonfamily firms

The effect of social networking relationships, firm‐specific managerial experience, and their interactions on performance between family owned and nonfamily firms are studied. Using data from 106 organizations in Ghana, the findings show that family owned firms benefit more from networking relationships with bureaucratic officials than do nonfamily firms. However, nonfamily firms benefit more from networking relationships with community leaders and firm‐specific managerial experience than do family owned firms. Networking relationships with politicians impede performance for nonfamily firms. Nonfamily firms are better able than family owned firms to use their firm‐specific managerial experience to manage the resources and capabilities obtained from networking relationships with community leaders to create value. Moreover, firm‐specific managerial experience attenuates the detrimental effects of networking with politicians for both types of firms. Copyright © 2012 John Wiley & Sons, Ltd.     

Further Evidence on the Capital Structure of REITs

This study examines the determinants of real estate investment trust (REIT) capital structure decisions from 1990 to 2008. Using a broad sample of 2,409 firm‐year observations, we find that asset tangibility is positively related to leverage, whereas profitability and market‐to‐book ratios are negatively related. Additional evidence suggests that firm debt capacity varies systematically with the unique operating and financing mechanisms employed by REITs. These results are robust across both aggregate firm debt levels and marginal security issuance decisions. Finally, our results provide further insight into competing capital structure theories, generally supporting empirical predictions derived from the market timing and trade‐off theories, although failing to support pecking order theory predictions.     

Does importer involvement contribute to product innovation? The role of export market factors and intra-firm coordination

Relying on insights from resource dependence and information processing theory, this study analyzes the extent to which an importer's involvement influences product innovation at the industrial exporter firm. We consider two modes of involvement, collecting importer's feedback and importer integration in the product development effort. We propose that the relationship between importer involvement and product innovation is contingent upon the level of inter-functional coordination within the development firm, and contextual factors related to the export market. Data were collected from export companies participating in different international business-to-business markets. Results show that firms with high inter-functional coordination achieved higher leverage from importer feedback, but obtain no impact from importer integration in product development (PD). Contextual factors affect the relationship between importer involvement and product innovation: importer feedback affects product innovation in environments with intense competition and low technological turbulence. Importer integration in PD has a significant effect on product innovation in environments with low competitive intensity and high technological turbulence. This study contributes to a better understanding of the conditions that allow an exporter firm to create value through external relationships. Theoretical and managerial implications of these findings are discussed.     

REIT Leverage and Return Performance: Keep Your Eye on the Target

This article examines U.S. REIT leverage decisions and their effects on risk and return. We find that the speed at which REITs close the gap between current debt levels and target leverage levels is 17% annually. REITs that are highly levered relative to the average REIT tend to underperform REITs with less debt in their capital structure. However, REITs that are highly levered relative to their target leverage tend to perform better on a risk‐adjusted basis than under‐levered REITs. Taken together, our results show that REIT leverage has significant return performance effects conditional on deviations from target leverage.     

Financial constraints and firm post-entry performance

Firms finance production by internally generated funds and external loans. The benefits of leverage, however, come with a cost. This cost is related to the uncertainty banks face about the firm's quality and output price. As time evolves banks learn about the firm and adjust the terms of the loan contract. Because of this, firms do not have equal access to credit: small, young firms face greater binding debt constraints than more mature firms with well-known prospects. The firm survival rate, as well as the firm rate of growth, are, therefore, important issues in analyzing firm post-entry performance.     

Executive perks: Compensation and corporate performance in China

Many studies have examined CEO compensation in developed countries, where a long tradition of disclosure renders data readily available. In emerging economies, particularly in China, where market-based compensation is a relatively new phenomenon, there are few studies of CEO compensation. In addition, information on the use of non-cash compensation is almost absent. Building on the general literature on CEO compensation, and Chinese economic and management studies, this article singularly contributes to the extant literature by (1) examining the motivational determinants of CEO perk compensation, on the one hand, and (2) exploring the relative contribution of perks to performance. We anticipate that perks can serve two roles in China: (1) to provide incentives to deter managerial shirking, and (2) to facilitate work and improve production. We find that perks are positively associated with current and future returns on assets, supporting the view that some types of perks may improve firm profitability and/or that perks are paid as a bonus to reward performance. Our findings from stratified samples suggest that perks may incentivize managers, even after controlling for firm fundamentals, such as firm size, growth opportunity, and leverage.     

Focus, Transparency and Value: The REIT Evidence

We trace the effects of corporate focus by examining the relationships among focus, cash flows and firm value. In contrast to past studies that examine the effects of diversifying across SIC-code-defined industries, we show that diversification, even within a single industry, reduces value. Our evidence, drawn from a panel of real estate investment trusts, indicates that this reduction is not due to poor managerial performance. Project-level cash flows are actually higher for less focused firms. However, these gains are offset by higher management, administrative and interest expenses. Thus, the corporate cash flows available to shareholders are not related to focus. Finally, we provide empirical evidence that links the effect of focus on value to informational asymmetries which cause the equity of diversified firms to be less liquid. We attribute some of the effect of focus on the cost of both debt and equity to informational asymmetries or transparency costs.     

地方政府债务的挤出效应:基于企业杠杆操纵的证据

地方政府债务对微观经济实体的挤出效应是当前制约中国经济迈向高质量发展阶段的长期性、结构性和体制性问题。迫于地方政府债务扩张对信贷资源的挤占,企业有较强的动机通过粉饰真实杠杆率来增强外部融资能力。基于城市层面的政府债务数据,本文研究了地方政府债务对上市公司杠杆操纵行为的影响。结果表明,地方政府债务扩张显著加剧了企业的杠杆操纵程度,可能导致企业存在虚假降杠杆的情况。考虑内生性问题以及进行一系列稳健性检验后结论依然成立,并且地方政府债务对企业杠杆操纵行为的影响在非公开发行债务占比更大、财政分权与财政压力程度更大的样本中体现得更为明显。进一步研究发现,地方政府债务加剧企业杠杆操纵的结果主要见诸于企业融资约束更强、债务结构更依赖银行贷款、预算硬约束和信息不对称更大的样本。经济后果检验表明,面对地方政府债务扩张,杠杆操纵提升了企业信贷融资能力,但也加剧了企业未来债务违约风险。本文的研究不仅从杠杆操纵的视角为地方政府债务的挤出效应提供了新的证据,也为积极稳妥处理地方政府债务风险、防止企业虚假降杠杆提供了有益的政策启示。     

期望落差下的组织搜索:长期债务融资及其价值再造

企业在何种状态下采取长期负债经营策略以及这种策略将对企业未来的发展产生何种影响,是一个重要的理论问题。本文将企业的长期债务融资视为组织搜索行为,构建了一个绩效反馈的权变模型,探讨期望落差与长期债务融资之间的理论关系及制约因素。本文基于2007—2018年中国上市企业数据的检验结果表明:期望落差将对企业长期债务融资产生直接影响。在企业管理者搜索动机与搜索成本的共同作用下,企业的长期债务融资与期望落差程度呈非线性关系,即在临近期望值的状态下企业管理者表现出局部搜索动机,倾向于通过增加债务来解决企业的期望落差问题;而在远离期望值的状态下表现出非局部搜索动机,倾向于减少长期债务融资。环境不确定性是制约期望落差下企业长期债务融资策略的重要因素,市场与政策环境的不确定性越高,则越有可能导致处于落差状态下的企业减少长期债务融资。期望落差状态下的长期债务融资与企业价值再造能力之间存在着先升后降的“倒U型”关系,即落差状态下适度的长期债务融资提高了企业的价值能力,但超过临界点后将对价值再造起到遏制作用。本文在一定程度上丰富了期望落差下组织搜索的过程机制,为深入理解企业长期负债经营的前因提供了新的视角。     

Differences in managerial discretion across countries: how nation‐level institutions affect the degree to which ceos matter

The concept of managerial discretion provides a theoretical fulcrum for resolving the debate about whether chief executive officers (CEOs) have much influence over company outcomes. In this paper, we operationalize and further develop the construct of managerial discretion at the national level. In an empirical examination of 15 countries, we find that certain informal and formal national institutions—individualism, tolerance of uncertainty, cultural looseness, dispersed firm ownership, a common‐law legal origin, and employer flexibility—are associated with the degree of managerial discretion available to CEOs of public firms in a country. In turn, we show that country‐level managerial discretion is associated with how much impact CEOs have on the performance of their firms. We also find that discretion mediates the relationship between national institutions and CEO effects on firm performance. Finally, we discuss two inductively derived institutional themes: autonomy orientation and risk orientation. Copyright © 2011 John Wiley & Sons, Ltd.     

Making the most of what you have: managerial ability as a source of resource value creation

The current study investigates a central premise of the resource‐based view of the firm—that managers are a potential source of value creation for the firm. Using data from professional sports teams, we test theory regarding the effects of managerial ability, human resource stocks, and managers' actions on resource value creation. While results indicate managerial ability affects resource productivity, this effect is less pronounced with increases in the quality of firm resources. Further, we investigate the extent to which managerial actions that synchronize resource bundles account for the influence of managerial ability and resource context on a firm's performance advantage. These results contribute to our understanding of resource management and provide empirical evidence for the importance of managerial ability in the resource‐based view. Copyright © 2008 John Wiley & Sons, Ltd.     

Insurance and ownership structure in India’s corporate sector

In this study we examine the effect of ownership structure on the decision of Indian firms to purchase property insurance. We find that firms with a high degree of managerial ownership and leverage, plus firms with high growth options, high asset tangibility, and public listing status are more likely to insure their assets than other entities. We also observe that different factors determine the amount of property insurance purchased, in particular, the higher the degree of managerial ownership and indebtedness the less indemnity coverage acquired. Additionally, the younger the firm the greater the amount of insurance purchased. We contend that our results shed light into the strategic risk management behavior of Indian firms and that such insights could be of relevance to various parties, including international and domestic business investors.     

The substitution effects of short-term debt for long-term debt on the expected returns of common stocks

The determination of the level of corporate borrowing and the choice of debt maturity are the two most important concerns in the management of capital structure. In this study, we examine analytically and empirically the impact of debt maturity changes on the expected returns of common stocks. Using the US stock market data and financial statement data, we examine the cross-sectional relation between expected returns and financial leverage ratios. We find reliable evidence that common stock expected returns are positively related to the extent of short-term debt financing. The positive relation is significant even after we control for systematic risk, total debt ratio and firm size. The results suggest that an increase in short-term debt which displaces the same amount of long-term debt increases the expected returns of common stocks, possibly because the substitution transfers risk from long-term debtholders to shareholders.The author is from the Department of Business Administration, Han Sung University, Seoul, Korea. This paper is based on my dissertation submitted to the School of Management, SUNY at Buffalo (1991). I would like to thank my dissertation committee, Dosoung Choi, Frank Jen and Michael Rozeff, for their invaluable comments throughout the dissertation research.     

Supporting product innovativeness and customer value at the bottom of the pyramid through context-specific capabilities and social ties

Local firms operating in bottom of the pyramid (BoP) markets face significant challenges in managing their innovation practices and creating value for customers. Operating in resource-constrained environments, local BoP firms need to behave as bricoleurs, deploy capabilities that help creatively combine and leverage their limited available resources to innovate and create value for customers. Employing the capability-based view (CBV) of the firm and social capital theory (SCT), we develop a research model to explain the extent that local BoP manufacturers use bricolage to develop innovative products that create value for BoP customers. Analysis of data obtained from 150 local BoP manufacturing firms (three managers in each firm) and two of their major customer firms shows that the relationship between bricolage and product innovativeness is more complex than previously understood. Results show that the curvilinear relationship is attenuated differently by social ties with government versus ties with civil society organizations. Furthermore, findings also support the contingency role of BoP firms' marketing capabilities in translating product innovativeness into customer value in BoP markets. These findings present specific implications for scholars and practitioners interested in BoP markets.