Housing boom,real estate diversification,and capital structure: Evidence from China |
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| Affiliation: | 1. Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu, China;2. Nanjing Audit University, Nanjing, China;1. Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu, China;2. Nanjing Audit University, Nanjing, China;1. Cornell S.C. Johnson College of Business, Cornell University, USA;2. Judge Business School, Cambridge University, UK;1. General Education Center, Kainan University, No. 1 Kainan Road, Luzhu Shiang, Taoyuan, Taiwan;2. Department of Public Finance, National Chengchi University, No. 64, ZhiNan Road Sec. 2, Taipei 116, Taiwan;3. School of Economics, Henan University, Jin Ming Avenue, Kaifeng 475004, China;1. Division of Science and Technology, BNU-HKBU United International College, Zhuhai, China;2. Business School, Sun Yat-sen University, Guangzhou, China;3. Department of Finance, East China University of Science and Technology, China;4. Chair of Entrepreneurial Risks and The Financial Crisis Observatory, Department of Management, Technology and Economics, ETH, Zurich, Switzerland |
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| Abstract: | By exploiting the unique situation in China that numbers of listed firms diversified into the real estate industry during the recent housing boom period, we find that firms' real estate diversification positively influences their subsequent leverage ratios. Further investigations suggest that such an increase in leverage mainly comes from short-term debt instead of long-term debt. We also find that housing price growth and state ownership are underlying mechanisms through which real estate diversification stimulates leverage. Last, we find that firms with real estate diversification enjoy less financing cost deterioration and less market value deterioration when they raise more debt. |
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