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Geographic Proximity and Competition for Scarce Capital: Evidence from U.S. REITs

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Listed:
  • Chongyu Wang

    (Concordia University)

  • Jeffrey P. Cohen

    (University of Connecticut)

  • John L. Glascock

    (University of Connecticut)

Abstract

The question of whether REITs compete for scarce capital across geographic space is deserving of attention. In this study, we consider the issue of spatial competition among REITs across U.S. states in terms of the degree of interdependence in financial capital demand. First, we motivate the issue with a theoretical model of cost minimization by using a representative REIT in a given U.S. state and demonstrate that a priori, it is unclear whether the capital demand of a REIT depends on that of the REITs in other states. Then we use spatial econometrics techniques and find empirically that REITs compete for financial capital with REITs in other states. We also find evidence of feedback (or indirect) effects, thus implying amplified crowding out of financial capital when other REITs in nearby states increase financial capital demand. Our findings are aligned with the predation hypothesis, which suggests that REIT managers might exploit the financial distress of neighboring REITs and/or investors as an opportunity to steal their market share. Another key contribution of this study is that we focus on capital liquidity as opposed to stock liquidity.

Suggested Citation

  • Chongyu Wang & Jeffrey P. Cohen & John L. Glascock, 2019. "Geographic Proximity and Competition for Scarce Capital: Evidence from U.S. REITs," International Real Estate Review, Global Social Science Institute, vol. 22(4), pages 535-570.
    • Handle: RePEc:ire:issued:v:22:n:04:2019:p:535-570
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    More about this item

    Keywords

    REITs; Financial Capital Scarcity; Geographic Spillovers;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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