Publication Type

Journal Article

Version

publishedVersion

Publication Date

7-2018

Abstract

This paper empirically examines how real estate risk impacts corporate investment and financing decisions. Using a panel of United States firms from 1985 to 2013, we document that real estate risk is negatively associated with firms’ long-term investments and long-term external financing in equity and debt. The results are robust to different risk measurements and in particular salient during the financial crisis period when the endogeneity between risk and investment is less of a concern. The effect on firm leverage, however, depends on risk measures. Overall, in contrast to previously documented positive effects of the real estate value, real estate risk exposure exhibits mostly the opposite effects on investment, financing and capital structure. This difference is consistent with option value determinants. Findings in this paper shed new lights on the impact of real estate holding on corporate decisions, offer a new explanation for the underperformance of hedge funds’ real estate strategies, and confirm the theoretical predictions in Deng et al. (2015).

Keywords

Real estate risk, Corporate investment, External financing

Discipline

Corporate Finance | Finance

Research Areas

Finance

Publication

Journal of Real Estate Finance and Economics

Volume

57

Issue

1

First Page

87

Last Page

113

ISSN

0895-5638

Identifier

10.1007/s11146-017-9599-y

Publisher

Springer

External URL

http://www.scopus.com/inward/record.url?eid=2-s2.0-85015830348&partnerID=MN8TOARS

Additional URL

https://doi.org/10.1007/s11146-017-9599-y

Download

Share

COinS