Social Network Matters: Capital Structure Risk Control on REITs

This paper uses biographical information of executives and directors of REITs in the US to show whether, and through what channels, top executives of REITs are influenced by their social peers when determining capital structure risk control strategies, especially in critical periods. Our focus is on the period of the 2007–2009 Financial Crisis. We find that peer influence through past employment and sharing activities significantly facilitate peer learning in making decisions on debt maturity extension, but does not affect leverage reduction. We find that being educated from the same school carries some effects on leverage reduction, possibly via its influence on managers’ personal traits. However, concurrent employment does not play a role in determining either of the strategies. We further verify the existence of influence of social network in decision making of REITs in 2015 in preparation for a boom at the beginning of the up-market. Hence, our study highlights the strength of peer connections in clarifying possible sources of herding in REITs decisions.