Decomposing industry leverage: The special cases of real estate investment trusts and technology & hardware companies |
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Authors: | Wolfgang Breuer Linh D Nguyen Bertram I Steininger |
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Institution: | 1. Department of Finance, RWTH Aachen University, Aachen, Germany;2. Department of Finance, Banking University of Ho Chi Minh City, Ho Chi Minh City, Vietnam;3. Real Estate Economics and Finance, KTH Royal Institute of Technology, Stockholm, Sweden |
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Abstract: | Different industries exhibit significantly different leverage; companies in the real estate investment trust (REIT) and technology/hardware sectors are extreme examples. In the United States, the leverage ratio is twice as high for REITs (50%) as compared to non-real-estate firms (around 25%), and the technology/hardware sector has the lowest ratio (around 17%). We theoretically and empirically analyze their differences. By decomposing the difference into three channels, we find that the industry-specific channel explains around 67% for REITs and 68% for technology/hardware firms; the value-based channel is mostly responsible for the remaining portion. Taking the nonlinear influences of extreme values into account, the relevance of the industry-specific channel is considerably reduced. |
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