Do residential property companies systematically adjust their capital structure? The case of Germany

This paper analyzes whether predominantly non-listed corporations in the residential property industry systematically adjust their capital structure to changing financing requirements. Since previous research almost exclusively focused on listed companies, little is known about the considerations that drive the choice of capital structure of nonlisted companies. We therefore adopt established testing approaches for the pecking order theory and the trade-off theory from the finance literature, which we then apply to a sample of 1,300 German residential property companies. These companies are characterized by various legal forms and large differences in size. We find that capital structure adjustment behavior differs largely among property companies of different legal forms. While housing cooperatives behave in line with the trade-off theory, the behavior of stock companies and corporations with limited liability is more in line with the pecking order theory.