Cross-industry Real Estate Business Operating and Enterprise Performance: Supplement or Detriment

Abstract

As economic growth slows down in China, many real enterprises have begun to operate real estate in order to improve their performance. The real estate industry presents a high profit level, and enterprises can directly boost their performance by relying on the high returns of the real estate business. At the same time, enterprises operating the real estate business across industries can also improve their performance through the synergistic effect” between the real estate business and the main business. On the other hand, cross-industry real estate business operating may also push up management costs, and the real estate business may be difficult to synergize with the main business, which is not conducive to the improvement of enterprise performance. So, does cross-industry real estate business operating help enterprises improve their performance? Can the real estate business and the main business of enterprises produce mutually beneficial effects? The above issues are the focus of this paper.This paper studies the impact of cross-industry real estate business operating on the overall performance and the main business performance, and uses the data of A-share listed companies during 2007-2016 to testify. The result shows that cross-industry real estate business operating has a positive effect on the overall performance. And the deeper enterprises enter, the higher the performance improvement is. However, the improvement of the overall performance mainly comes from the real estate business, but the performance of the main business of enterprises has declined. Furthermore, not all types of enterprises can improve their performance by operating the real estate business. Among industries with low correlation with real estate and enterprises with high investment in R&D, cross-industry real estate business operating not only fails to improve the performance of enterprises, but also has an adverse impact on the performance of the main business. More importantly, this paper finds that only in areas with high housing price growth rates, cross-industry real estate business operating can improve the performance of enterprises. This means that with the decline of the demographic dividend and the establishment of a long-term mechanism of real estate, the growth of performance brought by cross-industry real estate business operating cannot be sustained. The development of real enterprises should return to their main business. This paper expands the research on the impact of the real estate industry on the real economy, and at the same time helps to provide a basis for the judgment of diversified business decisions.