Performance of the Swedish Real Estate Sector 1998-2002

In this paper, we analyze the performance of the Swedish real estate sector by various profitability measures. We use an unbalanced panel of 781 non-listed companies from 1998 to 2000 with 3421 observations. There exists large regional and sectorial differences in performance but it is not due to regional or sectoiral effect. Rather those differences can be largely explained by capital structure, tangibility and turnover of the firm, etc. We use both a single equations and a simultaneous equations approach to control for endogeneity and simultaneity. In the simultaneous equations framework we find a positive and significant effect of performance on capital structure (i.e. debt to total assets ratio). While capital structure does influence the performance, it has a smaller but significant effect. The results indicate that banks and financial institutions lend more to profitable firms and firms with more tangible assets than otherwise. Tangible assets as ëinventoryí contribute negatively to performance after taking into account of the effect of capital structure on performance. We can conclude that tangible assets contribute to the profitability of a firm up to a point for the sake of bank loan. However, excessive tangible assets are negatively related to the profitability, at least for the shorter term. Our results stand the same even after controlling for regional differences and sub sectorial differences.