Corporate Real Estate Ownership and Productivity Uncertainty

Abstract

This article empirically tests the relationship between corporate real estate (CRE) holdings and productivity risks of firms. Using a large sample of public listed U.S. firms for the period from 1984 to 2011, we show that CRE ownership is significantly and negatively correlated with productivity risks of firms. Firms with high‐productivity risk own less CRE assets. When testing dynamic changes to CRE holdings, we estimate a significant and positive elasticity of CRE investments of 5.2% in response to cash flow shocks. If the adjustment cost is high, high‐risk firms are expected to hold less CRE assets, so that they could reduce potential losses associated with CRE holdings when negative productive shocks occur.

Real Estate Investments, Product Market Competition and Stock Returns

“…Tuzel argues that the positive effect of real estate on firm risk stems from the operating inflexibility, low depreciation rate and significant asymmetric adjustment costs associated with real estate as a factor of production. Somewhat similarly, Zhao and Sing () examine corporate real estate ownership decisions in the presence of productivity uncertainty and show that high‐risk firms are expected to hold less real estate assets in order to reduce potential operating losses in the event of negative productivity shocks. This documented positive relation between real estate and stock returns normally implies the pricing of some risk directly or indirectly associated with real estate.…”

“…The terms oligopolistic industries (oligopolies) and concentrated industries have the same meaning and are used interchangeably in this article. 3 The real estate literature reviewed later has also explored with various degrees of success the relation between real estate ownership and stock returns (Deng and Gyourko 1999), systematic risk , production uncertainty (Zhao and Sing 2015) or demand uncertainty (Ambrose, Diop and Yoshida 2016). 4 Nonreal estate firms are firms whose primary business is not directly related to real estate development, investment, management or financing.…”

“…The real estate literature reviewed later has also explored with various degrees of success the relation between real estate ownership and stock returns (Deng and Gyourko ), systematic risk (Brounen and Eichholtz ), production uncertainty (Zhao and Sing ) or demand uncertainty (Ambrose, Diop and Yoshida ).…”

The effect of corporate real estate ownership on R&D innovation: credit relief vs. resource replacement in China

“…Following literature from (Wang and Rong ; Zhao and Sing ), dependent variables include Revalue1 and Revalue2 . The independent variable for R&D innovation is RS , control variables include financial leverage, firm size, profitability, book‐to‐market ratio, equity nature, equity structure, ownership concentration, the ratio of cash flow, stock yield, net market value ratio, per capita GDP, M2 growth rate, and the city house‐price index.…”

Corporate real estate specificity, ownership and its contribution to firm performance: empirical evidence from the German capital market

“…"(Cavanaugh et al 1997) UC2 E,F is the deviation of the uncertainty for firm i in year t in comparison to the average industry uncertainty. N is the number of firms in the same industry I in year t) (Basing onZhao et al 2016, Ambrose 2016) Due to governance mechanism more restrictive cash flows and CRE investments. (+) Due to collateralizing CRE holdings can be positively associated with long term debt.!…”