Three essays in REIT corporate finance

This dissertation consists of three essays which examine effects of financial constraint on firm investment and financial policies, value of banking relationships, and impacts of bank consolidation on industrial market structure, respectively. I focus on Real Estate Investment Trusts (REITs) as they provide a unique laboratory for studying these issues.; The first essay examines relationships among firm investment, cash flow and use of bank lines of credit (L/Cs) to identify effects of financial constraint on firm investment and financial policies. The results suggest that bank L/C (i.e., external-source financial liquidity) matters for REIT investment and that the two types of sensitivity can be used to identify the degree of financial constraint. Furthermore, banking relationship helps relax financial constraint and facilitates firm investment. The second essay conducts an analysis on use of bank debt by REITs with a focus on value of banking relationships and their effects on REITs' financial policies. I document that there exists a "bridge-financing" pattern in REITs' financing policy and that commercial banks underwrite a significant portion of public debt and equity offerings for REITs. Moreover, I show that "relationship loans" bear favorable loan rates and the issuers of "relationship offerings" pay less underwriting fees. Also, banking relationships affect REITs' financing choice. These findings show that banking relationships add value to REITs and have important impacts on REITs' financial policies. The third essay examines whether bank mergers lead to REIT mergers and in turn influence the market structure of REITs. The results show that bank mergers reduce regional bank competition, which increases costs of bank capital for small REITs. In addition, REIT concentration is positively related to bank concentration in the same region, and more concentrated banking markets lead to more concentrated REIT markets. These findings suggest that bank mergers create incentives for REITs to consolidate.