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Corporate reliance on bank loans: an empirical analysis of UK property companies

Joseph Ooi (School of Building and Real Estate, National University of Singapore, Singapore)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 1 February 2000

Abstract

The focus of this research paper is on the debt ownership choice of UK property companies. The data show that bank borrowings constitute more than half of the total outstanding debt of the quoted property sector, testifying to the widespread use of bank debt among property companies. We carried out four censored regressions to identify key factors influencing the firms’ decision to use bank loans instead of other types of debt. The results reveal that firm size and credit risk are significant determinants of the bank debt ratio of property companies. We also observe that institutional ownership has a strong positive effect on bank debt reliance. This finding suggests that institutional investors in property companies delegate the monitoring of the firm’s actions to the banks. We also find a weakly positive relationship between interest rate and bank debt ratio. The regression results further suggest that property market cycle, volatility of interest rates, and the firm’s leverage, growth opportunity, trading activities and age do not have any significant effect on the debt ownership choice.

Keywords

Citation

Ooi, J. (2000), "Corporate reliance on bank loans: an empirical analysis of UK property companies", Journal of Property Investment & Finance, Vol. 18 No. 1, pp. 103-120. https://doi.org/10.1108/14635780010316681

Publisher

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MCB UP Ltd

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