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We are grateful for the constructive comments from Zhilan Feng, Robert Edelstein, Zhonghua Wu, Xudong An, Kwong Wing Chau, Hong Yu Liu, and all the participants of the Asia-Pacific Real Estate Research Symposium 2012 held at Tsinghua University. We also wish to thank National University of Singapore for financial support.
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.
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- Debt Raising and Refinancing by Japanese REITs: Information Content in a Credit Crunch
Cheng Keat Tang
Seow Eng Ong
Joseph T. L. Ooi
- Springer US
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