1、本科毕业论文（设计） 外 文 翻 译 原文： On the Capital Structure of Real Estate Investment Trusts In general, the received theory on capital structure can be categorized into two broad classes, one of optimization where managers trade off the costs against the benefits of debt, and the other behavioral where manager
2、ial decision making is influenced by markets perception of managers superior information, and the overall condition of the market which may occasionally present windows of opportunity to sell securities at a premium. Optimization of the Costs and Benefits of DebtTradeoff Theory Tradeoff theory posit
3、s that a target debt ratio exists which is determined by the tradeoff between the costs and benefits of debt, with the firms assets and investment plans held constant. The most significant benefit of debt financing is the interest tax shield. Mandatory interest payment also reduces free cash flow wh
4、ich mitigates the agency conflict between security-holders and managers. Since profitable firms have higher income to shield, and greater free cash flow, theory predicts higher leverage for profitable firms, and the opposite for firms with investment opportunities that are perceived to be risky. The
5、 cost of financial distress is the major detriment of debt. Factors that mitigate bankruptcy risk include firms access to fixed assets as collateral, and greater profit potential. For example, high (low)-growth firms that are more sensitive to fluctuations in business outlook and are therefore more
6、vulnerable due to the costs of financial distress, choose lower (higher) leverage ratio. Smith and Watts (1992) and Barclay, Morella, and Smith (2003) report evidence consistent with this notion. Titman and Wessel (1988) find that debt ratio is negatively related to the uniqueness of a firms line of
7、 business, and Rajan and Zingales (1995) find that firm size is positively correlated with leverage and profitability is negatively correlated with leverage in all countries except Germany. Under tradeoff theory, deviations from target capital structure are only temporary. Firms make financing choic
8、es to rebalance debt ratio to the long-term optimum which implies that no systematic relation exits between leverage and investment opportunities. Behavioral TheoriesPecking Order and Market Timing Developed by Myers (1984) and Myers and Majluf (1984), the pecking order model argues that managers ha
9、ve privileged information about firm value that investors do 84 Z. Feng et al. not have. Because managers can exploit this advantage to sell equity when it is overvalued, new shareholders avoid or discount equity, which implies that only inferior firms have the incentive to sell equity. The adverse
10、selection cost is the main motivation for issuing the safest security first. As such, firms use retained earnings, debt and equity, in that order. Hence, high growth firms that need more external capital are predicted to have high leverage ratio. A dynamic version of pecking order theory, in contras
11、t, predicts that, holding profitability constant, firms with investment opportunities keep payout low to conserve funds, and preserve debt capacity so as not to be forced into selling equity in the future. Shy am-Sunder and Myers (1999) find that over the period 19711989, pecking order theory has mu
12、ch greater time series explanatory power than the static tradeoff model. Similarly, Fame and French(2002) find more profitable firms are less levered. However, using a panel of IPO firms, Helene and Liang (1996) find no relationship between the decision to raise external capital and the shortfall of
13、 internally generated funds. Frank and Goal (2003) conclude that over the period 19711988, new equity issues track financing deficit more closely than debt issues. Market Timing theory has two related implications. First, it suggests that firms issue securities when the market condition is favorable
14、, and avoid issuing when the market is sluggish. This pattern is consistent with anecdotal evidence that prior stock price movement and perception of under- or over-valuation of firms stock play important roles in CFOs decision to raise external funds. Assuming that the ratio of market value to book
15、 value reflects investment opportunities, Baker and Wurgler(2002) demonstrate that change in leverage is negatively related to previous period market-to-book ratio. Their data reveal that financing is done primarily by issuing equity, not with retained earnings. Second, current leverage is a decreas
16、ing function of external finance weighted-average of past market-to-book ratios which implies that past market valuation has a persistently negative impact on firms leverage ratio. Baker and Wurglers (2002) evidence is consistent with this notion, but contrary to both trade off and pecking order the
17、ories. REIT Regulatory Environment and Capital Structure REITs are not required to pay taxes if they distribute 90% of taxable income as dividends. This nullifies two important benefits of debt. One, tax deductibility of interest payments is lost. Two, since most of the income is distributed, debt s
18、ervicing is not critical in mitigating agency cost of free cash flow. Costs of financial distress further detract from the value of debt financing. Accordingly, the trade-off theory predicts that REITs should have low debt in their capital structure. But, anecdotal evidence is not consistent with th
19、is prediction. REITs carry significant amount of debtin our sample, debt accounts for more than 50% of financing at IPO, gradually increasing to over 65% in 10 years. The pecking order theory offers some rationale for the use of debt financingdebt is preferred because shareholders discount the value
20、 of new equity out of suspicion that managers use privileged information to sell risky equity when it is overvalued. Based on information asymmetry between managers and shareholders, pecking order requires that managers have full discretion over the choice of funding On the Capital Structure of Real
21、 Estate Investment Trusts (REITs) 85 through retained earnings, debt and equity. This makes the relevance of the pecking order model somewhat questionable in the REIT context. To elaborate, high dividend payout reduces retained earnings for REITs so that funding choice is limited to debt and equity.
22、2 Under this constraint, stock sales may be viewed with less skepticism. In addition, opinion varies on the extent of information asymmetry in the real estate sector. Some hold that with limited investment in human capital, and fewer strategic growth opportunities, REIT assets are relatively easier to value. Others contend that
