Capital Structure in the Real Estate and Construction Industry - An empirical study of the pecking order theory, the trade-off theory and the maturity-matching principle

Abstract

The aim of this report is to test if the real estate industry and the construction industry in Sweden are described by the pecking order theory, trade-off theory and/or the maturity-matching principle by investigating determinants of capital structure in the two industries separately. The theoretical framework used in this report is the pecking order theory, the trade-off theory and the maturity-matching principle in order to establish the research topic. A static panel data regression is performed on a decomposed leverage level to test the hypotheses empirically, including the unobserved firm characteristics: growth opportunities, profitability, size, tangibility, volatility in earnings, non-debt tax shields and lastly effective tax rate. The results indicate that the Swedish real estate industry and the Swedish construction industry differ significantly over the period of 2007 to 2015. In general, the report provides support for both the pecking order theory, the trade-off theory and the maturity-matching principle.