Financial flexibility and security issuance decisions
This paper examines the roles of financial flexibility in firms’ security issuance decisions.Focusing on Asian Real Estate Investment Trusts (REITs) that are subject to regulatory debt limit, we construct a direct proxy to financial flexibility measured as the difference between debt limit and actu...
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| Main Author: | |
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| Format: | Conference or Workshop Item |
| Language: | English |
| Published: |
2014
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| Subjects: | |
| Online Access: | http://repo.uum.edu.my/11581/1/F.pdf http://repo.uum.edu.my/11581/ http://umconference.um.edu.my/ |
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| Summary: | This paper examines the roles of financial flexibility in firms’ security issuance decisions.Focusing on Asian Real Estate Investment Trusts (REITs) that are subject to regulatory debt limit, we construct a direct proxy to financial flexibility measured as
the difference between debt limit and actual debt ratio.This unused debt capacity or
buffer measures financial flexibility as it
indicates how much additional debt a REIT
can issue.REITs maintain significant
debt buffer in their balance sheet
which equals to 25% of the total assets.This buffer has been relatively stable
during the 10 years study period indicating a conservative debt policy being adopted by REITs in our sample.Controlling for investment policy, we find that REITs’ security issuance decisions are influenced by its debt buffer in a manner consistent with financial flexibilities hypotheses where
REITs with larger (smaller) unused debt capacity are more likely to issue marginal debt(equity) in the next period. The drop
in debt buffer due to marginal debt issuance is swiftly replenished in the following six months period after the issuance. |
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