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What determines the capital structure of real estate companies? An analysis of the EPRA/NAREIT Europe Index

Giacomo Morri (Corporate Finance and Real Estate Department, SDA Bocconi, Milan, Italy)
Fabio Cristanziani (Bocconi University, Milan, Italy)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 10 July 2009




This paper aims to investigate the determinants affecting the choice of the capital structure of European property companies.


The analysis considers the set of companies belonging to the EPRA/NAREIT Europe Index (both REITs and non‐REITs) and is based on panel data to get greater reliability and to check the cross‐time path of explanatory variables. Seven independent variables (size, profitability, growth opportunities, cost of debt, ownership structure, risk, and category) are studied over a five‐year period.


Results clearly show that non‐REIT companies are significantly more leveraged than REITs, confirming the importance of the tax‐exempt status in affecting capital structure choices. The negative relationship between operating risk and leverage demonstrates that the managers of riskier firms tend to reduce the overall company's uncertainty by adopting a more careful capital structure. Moreover, more profitable firms have less recourse to leverage. Evidence also suggests that the company's asset size is able to directly influence the amount of debt issued, confirming the hypothesis that debt is cheaper for bigger firms and its issue is affected by economies of scale.


The paper represents a break point with past literature for the sample, based on European companies, and the methodology, that relies more on market rather than on balance‐sheet or income statement items (obtaining higher comparability and avoiding country‐specific bias mainly concerning law, fiscal and earning management issues).



Morri, G. and Cristanziani, F. (2009), "What determines the capital structure of real estate companies? An analysis of the EPRA/NAREIT Europe Index", Journal of Property Investment & Finance, Vol. 27 No. 4, pp. 318-372.



Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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