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Corporate Real Estate Holdings and the Value of the Firm in Korea

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    Abstract

    This study investigates the relationship between changes in real estate prices and the value of firms. The main hypothesis is that changes in the value of firms caused by expectations of increasing real estate prices will be smaller in magnitude than these in the value of their real estate holdings since there will be a loss in the value of the firm occasioned by the perception of future growth opportunities forgone. The secondary hypothesis is that the loss in value caused by growth opportunities forgone will be proportional to the amount of debt financing used. The findings using a yearly cross-sectional test during 1987-91 indicate that the proportion of a firm's real estate holdings to its total assets had no significant effect upon the return-on-investment in its stocks. However, the higher the debt ratio of the firm, the lower the coefficient of the real estate holdings, implying that the value loss of the growth opportunities forgone becomes larger as the firm uses more debt. Also these results are not observed in size analysis. Accordingly, a debt effect is regarded to be clearer than a size effect in the impact upon stock returns of the real estate holdings.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol13n03/v13p273.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 13 (1997)
    Issue (Month): 3 ()
    Pages: 273-296

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    Handle: RePEc:jre:issued:v:13:n:3:1997:p:273-296

    Contact details of provider:
    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Web page: http://www.aresnet.org/

    Order Information:
    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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    References

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    1. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 55-65, Spring.
    2. Keim, Donald B., 1983. "Size-related anomalies and stock return seasonality : Further empirical evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 13-32, June.
    3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    4. David Hartzell & John S. Hekman & Mike E. Miles, 1987. "Real Estate Returns and Inflation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(1), pages 617-637.
    5. Black, Fischer & Scholes, Myron, 1974. "The effects of dividend yield and dividend policy on common stock prices and returns," Journal of Financial Economics, Elsevier, vol. 1(1), pages 1-22, May.
    6. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    7. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    8. Hugh O. Nourse & Stephen E. Roulac & Stellan Lundstrom, 1993. "Linking Real Estate Decisions to Corporate Strategy," Journal of Real Estate Research, American Real Estate Society, vol. 8(4), pages 475-494.
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    Cited by:
    1. Hongyan Du & Yongkai Ma, 2012. "Corporate Real Estate, Capital Structure and Stock Performance: Evidence from China," International Real Estate Review, Asian Real Estate Society, vol. 15(1), pages 107-126.

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