Debt Raising and Refinancing by Japanese Reits: Information Content in a Credit Crunch

Posted: 22 Jun 2016

See all articles by Cheng Keat Tang

Cheng Keat Tang

National University of Singapore (NUS)

Masaki Mori

National University of Singapore

Seow Eng Ong

National University of Singapore (NUS) - Department of Real Estate

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate

Date Written: February 2014

Abstract

This paper examines the information content of debt raising and refinancing activities of Real Estate Investment Trusts (REITs) in normal and tight credit markets. Based on a sample of 340 debt announcements made by REITs in Japan (J-REITs) between 2002 and 2011, we observe that they are associated with a positive stock price reaction, averaging 1.05 % over a 4-day window. Stratifying the sample into debt raising and debt refinancing, we find strong evidence that the positive economic gains associated with debt announcements flowed from the pool of debt refinancing announcements. They registered a significant mean return of 1.20 % over the 4-day window, as opposed to 0.07 % for the pool of debt raising activities. Further investigation shows that the positive market reaction to debt refinancing is more pronounced during the credit crunch of 2007 to 2009. Although debt refinancing does not lead to any change in the firm’s capital structure, it still contains valuable information about the firm’s prospect, especially in tight credit markets.

Keywords: Debt; Wealth Effects; REITs; Credit Crunch

Suggested Citation

Tang, Cheng Keat and Mori, Masaki and Ong, Seow Eng and Ooi, Joseph T. L., Debt Raising and Refinancing by Japanese Reits: Information Content in a Credit Crunch (February 2014). Journal of Real Estate Finance and Economics, pp. 1-21, 2014, Available at SSRN: https://ssrn.com/abstract=2798739

Cheng Keat Tang (Contact Author)

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

Masaki Mori

National University of Singapore ( email )

Department of Real Estate
4 Architecture Drive
Singapore, 117566
Singapore

Seow Eng Ong

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore
01-65-6516-3552 (Phone)
01-65-6774-8684 (Fax)

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

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