In this study, we investigate how the real estate investment trust (hereafter REIT)–sponsor firm relationship relates to REIT financing patterns by analyzing REIT funding approaches. Hence, the main purpose of the study is to examine the REIT–sponsor firm relationship, funding approach, and stock price by using REIT samples. Since real estate deal partners and shareholders often overlap as sponsor firms, the shared interests of REITs and sponsor firms have been debated since the establishment of the Japanese market over a decade ago. However, in the present study, we extend the works of previous authors by defining the sponsor firm as not only the major shareholder but also a real estate deal partner as declared by each REIT itself in the disclosed financial report. We also assume that the sponsor firm appoints a chief executive officer (CEO) for the REIT.

The motivation of our study is to confirm a common REIT market structure across countries by examining J-REIT markets. Wong et al.(2013) claim that major shareholders perform a significant role in stock public offerings. While they assume that REIT sponsor firms are the major shareholders, however, sponsor firms, although often minor shareholders in Japan, have a great influence over REIT management, because they typically also serve as the real estate deal partners and appoint CEOs for the REITs. Although the relationship between REITs and commercial banks has been examined by Hardin and Wu (2010) and Ooi et al.(2010), and that between REITs and external advisors has been discussed by Striewe et al.(2013), few scholars have studied the relationship between REITs and other non-financial firms. In the case of REITs in Japan, most sponsor firms are real estate businesses, urban development businesses, or other businesses except banks and advisory firms. Given the absence of conclusive findings on this topic, we are motivated to focus on the prevailing funding approaches in order to investigate the benefits and costs of the REIT–sponsor firm relationship. Hence, we bridge this gap in the literature by presenting evidence that the REIT–sponsor firm relationship influences the funding approach. In addition, our findings confirm those of recent works on the REIT funding approach that report a significant relationship with stock price.