Corporate real estate investment and firm performance: empirical evidence from listed non financial firms of Pakistan

Abstract

PurposeThis study aims at testing the relationship between corporate real estate (CRE) investment and firm performance of nonfinancial firms in the context of an underdeveloped market, Pakistan.Design/methodology/approachThis study uses a sample of 307 nonfinancial firms listed at the Pakistan Stock Exchange from 2010 to 2020. This study adopts a rigorous methodological approach and employs ordinary least square, fixed effect, generalized method of moments system regressions and the propensity score matching technique to account for potential heteroskedasticity, effects of unobserved variables and endogeneity.FindingsThis study finds that as the investment in CRE increases, the firm’s performance decreases. The findings are robust to alternative proxies of CRE investment and alternative methodologies. Furthermore, the findings hold for financially constrained and financially unconstrained firms, high- and low-growth firms and safe and financially distressed firms.Research limitations/implicationsThis study extends the evidence about CRE investment in an underdeveloped market and suggests potential avenues for future research.Practical implicationsThe findings of this study warrant investors, managers and directors be cautious about CRE investment in firms.Originality/valueThis study uses a new proxy of CRE investment, which is more inclined toward the asset management and financial perspective of CRE investment. Furthermore, to the best of the authors’ knowledge, this is the first attempt to investigate the role of CRE investment in an underdeveloped market.