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ABSTRACT: Equity marginal "q" is the change in the market value of a company's equity in response to a one-unit unexpected change in its asset base. Hence, it is a profitability index that evaluates a firm's capital budgeting decisions at the margin. We estimate the equity marginal "q" for real estate-managing public corporations, namely, real estate investment trusts (REITs), in an attempt to understand how the various costs and benefits of being a public corporation play a role in managing this important asset class. Using the universe of equity REITs for the period from 1993 to 2005, we find that REITs with greater idiosyncratic volatility, higher stock turnover and smaller bid-ask spread have a higher equity marginal "q". In addition, both the holdings of institutional investors and their investment horizons are respectively positively related to equity marginal "q." With these firm characteristics taken into account, firm size is found to be negatively related to equity marginal "q". Our findings are economically important as well, because the equity marginal "q" ratio alone accounts for approximately one-third of the total REIT shareholder wealth change during the study period. Copyright (c) 2009 American Real Estate and Urban Economics Association.
Real Estate Economics. 01/2009; 37(3):483-514.
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ABSTRACT: We investigate the role of disruptions to the structure of the homebuilding industry due to fluctuations in the availability of bank credit. We find a sustained decline in the large private homebuilder market share series over the period from 1988 to 1993 when many banks with deteriorated health reduced their lending in order to raise capital ratios. Regression analysis at the metropolitan statistical area level supports the hypothesis that, in areas where banks were less well capitalized and had more problem construction loans, the market shares of large private homebuilders that relied primarily on bank credit to finance their production suffered at the expense of the public homebuilders that had better access to external funds, in large part due to their direct access to public capital markets. Copyright 2008 American Real Estate and Urban Economics Association
Real Estate Economics. 01/2008; 36(4):659-692.
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ABSTRACT: This study considers the case of two overlapping categories in the context of recent category models. Specifically, we examine whether investor sentiment and market frictions specific to one category can affect the returns on assets belonging to the other category. With recent additions of several real estate investment trusts (REITs) into general stock market indices as a natural experiment, we find support for spillovers of such nonfundamental effects, as evidenced by the increased return correlation between REITs that remain outside the index and the index stocks. Further analysis reveals that market frictions play a greater role than investor sentiment. Copyright 2007 American Real Estate and Urban Economics Association
Real Estate Economics. 01/2007; 35(1):57-90.
