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Taxes and implied cost of equity capital in the UK-an analysis of Real Estate Investment Trusts

Taxes and implied cost of equity capital in the UK-an analysis of Real Estate Investment Trusts
Taxes and implied cost of equity capital in the UK-an analysis of Real Estate Investment Trusts
The effect of taxation on the implied cost of equity capital (ICE) has been by necessity focused on tax paying firms. There are no studies investigate what happens to the cost of equity capital when firms change their tax status. The introduction of the Real Estate Investment Trusts (REITs) in the UK in 2007 has provided such setting. It allows estimating of ICE for the UK REITs both pre and post conversion to examine the relationship between taxation and the cost of equity capital using a significant change in taxation.
This paper investigates whether the tax status of REITs has an effect on their ICE. This issue was empirically tested using ICE estimated by four different models.
The results suggest that the REITs exemption from corporation tax is associated with a significant increase in their ICE for levered REITs after conversion date and the majority of the study’s independent variables are consistent with the existing literature.
Tax; cost of capital; capital structure.
Al Kaddour, Mohamed
a5ecb140-4e4c-4708-94bc-4390b737c9e7
Holland, Kevin M.P.
91511fcc-a84b-44b6-98ee-13b6ebde71da
Al Kaddour, Mohamed
a5ecb140-4e4c-4708-94bc-4390b737c9e7
Holland, Kevin M.P.
91511fcc-a84b-44b6-98ee-13b6ebde71da

Al Kaddour, Mohamed and Holland, Kevin M.P. (2017) Taxes and implied cost of equity capital in the UK-an analysis of Real Estate Investment Trusts 20pp.

Record type: Monograph (Working Paper)

Abstract

The effect of taxation on the implied cost of equity capital (ICE) has been by necessity focused on tax paying firms. There are no studies investigate what happens to the cost of equity capital when firms change their tax status. The introduction of the Real Estate Investment Trusts (REITs) in the UK in 2007 has provided such setting. It allows estimating of ICE for the UK REITs both pre and post conversion to examine the relationship between taxation and the cost of equity capital using a significant change in taxation.
This paper investigates whether the tax status of REITs has an effect on their ICE. This issue was empirically tested using ICE estimated by four different models.
The results suggest that the REITs exemption from corporation tax is associated with a significant increase in their ICE for levered REITs after conversion date and the majority of the study’s independent variables are consistent with the existing literature.

Full text not available from this repository.

More information

In preparation date: 2017
Keywords: Tax; cost of capital; capital structure.

Identifiers

Local EPrints ID: 412301
URI: http://eprints.soton.ac.uk/id/eprint/412301
PURE UUID: 72fd2072-96dd-46c5-9dbe-4b7e0a94bca0

Catalogue record

Date deposited: 17 Jul 2017 13:27
Last modified: 17 Jul 2017 13:27

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Contributors

Author: Kevin M.P. Holland

University divisions

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