How Entrenchment, Incentives and Governance Influence REIT Capital Structure

Chinmoy Ghosh, Erasmo Giambona, John P. Harding, C. F. Sirmans

Research output: Contribution to journalArticlepeer-review

41 Scopus citations


Although recent literature has confirmed the importance of viewing a firm's capital structure choices of leverage and debt maturity as jointly determined, to date there has been little analysis of the importance of traditional governance variables on a firm's capital structure decisions using a simultaneous equations approach. We examine the influence of managerial incentives, traditional managerial monitoring mechanisms and managerial entrenchment on the capital structure of Real Estate Investment Trusts (REITs). Using panel data, we estimate a system of simultaneous equations for leverage and maturity and find that firms with entrenched CEOs use less leverage and shorter maturity debt. This is consistent with the expectation that managers acting in their own self interest will choose lower leverage to reduce liquidity risk and use short maturity debt to preserve their ability to enhance their compensation and reputations by empire building. We also find evidence that traditional alignment mechanisms such as equity and option ownership have an offsetting effect; and that firms where the founder serves as CEO choose higher leverage and longer maturity debt. The results also provide evidence that leverage and maturity are substitutes, firms with high profitability and growth opportunities use less leverage and firms with liquid assets use more leverage and longer maturity debt.

Original languageEnglish (US)
Pages (from-to)39-72
Number of pages34
JournalJournal of Real Estate Finance and Economics
Issue number1
StatePublished - Jul 2011
Externally publishedYes


  • Capital structure
  • Corporate governance
  • Entrenchment
  • Managerial incentives
  • REIT

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies


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