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Abstract
This paper investigates determinants of capital structure in 308 UK real estate companies. The data panel consists of accounting data from the fiscal years 1998–2006. By using panel data regression we find the significant factors influencing the capital structure of the selected companies. Profitability, tangibility and size are positively related to leverage, while asset turnover and earnings variability are negatively related. The significant positive relation of profitability contradicts major findings in the capital structure literature. Both the static trade‐off theory and the pecking order theory are supported by the signs of the determinants, however the former corresponds most. A supplementary finding is that UK real estate companies face large adjustment costs.
Acknowledgements
We would like to thank Stewart Clark at NTNU for his helpful support and assistance. We thank Eleanor Taylor, senior manager at Deloitte & Touche LLP London, for advice concerning taxation rules and real estate in general in the UK.
Notes
1. For a further discussion of capital structure theories we recommend Harris and Raviv (Citation1991), Titman and Wessel (Citation1988), Frank and Goyal (2003) or Frydenberg (Citation2004).
2. Amadeus is a database containing financial information on public and private European companies. See www.bvdep.com.
3. Different debt ratios are considered in the method section.
4. When LDTA is the dependent variable.
5. Because of the unbalanced panel of data, the number of observations differs from year to year.
6. Here, significant parameters are defined as those parameters which have a p‐value of less than 0.1.