Corporate real estate, capital structure and value creation

Maria Teresa Bosch-Badia, Joan Montllor-Serrats, Anna Maria Panosa-Gubau, Maria Antonia Tarrazon-Rodon

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)

Abstract

© 2017, © Emerald Publishing Limited. Purpose: This paper aims to analyse the corporate rent-vs-buy decision on real estate through the trade-off theory and default option in the framework of a corporation that aims to optimise its capital structure. Design/methodology/approach: The methodological core of this paper comprises the trade-off theory that approaches the optimal capital structure by counterbalancing debt tax savings with bankruptcy costs. Impacts on the default option and the default barrier are made explicit. The paper also explores the practical applicability of the renting scenarios in the European context by examining the regimes of real estate investment trusts in different countries from the demand-side of commercial renting. Findings: Analytical relationships with tax savings, bankruptcy costs, default option and default barrier are identified for the renting-vs-buying real estate decisions. Research limitations/implications: The theoretical model assumes simplifications, such as constant debt, to make it operational. The paper centres exclusively on the trade-off capital structure theory. Practical implications: This paper is an analysis of corporate real estate decisions together with capital structure. Applications are not only quantitative but also conceptual and strategic. Originality/value: Identifying the main variables that govern the impact of corporate real estate decisions on capital structure and interweaving different approaches generates a conceptual framework that enlightens strategic thinking in this field.
Original languageEnglish
Pages (from-to)384-404
JournalJournal of European Real Estate Research
Volume10
Issue number3
DOIs
Publication statusPublished - 1 Jan 2017

Keywords

  • Corporate capital structure
  • Corporate real estate
  • Default option
  • REITs

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