Abstract
Distinct from the existing literature, which mainly focuses on the impacts of green building practices on the owners’ benefits, this paper examines capital market participants’ perceptions of green building, specifically, the cost of equity capital. The study uses data regarding the United States Real Estate Investment Trusts (US REITs) from 2000 to 2016, employing a panel regression analysis and adopting a Price Earnings Growth (PEG) ratio model for the cost of equity capital estimation. We find a negative relationship between green building certification and the cost of equity capital. Our results encourage REITs to participate in green building certification and aim for higher green building rankings. In addition, we examine whether corporate governance could affect the intensity of green building practices in REITs. It is found that corporate governance practices implemented to align shareholders’ and managers’ interests, such as higher institutional holdings and a less dispersed ownership structure, positively impact firms’ resource allocation for green initiatives. The results suggest there could be mutual benefits for both economic profits and sustainable buildings.
Highlights
The pursuit of rapid economic growth has made people focus merely on economic profits, and neglect what may have thereby been sacrificed, for decades or even centuries
The empirical results of this study provide insights into the effect of green building certification on Real Estate Investment Trusts (REITs)’ financial condition, as well as the role corporate governance, ownership structure, may play in promoting greenness
The first model of this study aims to unveil the effect of green building certification on the cost of equity capital
Summary
The pursuit of rapid economic growth has made people focus merely on economic profits, and neglect what may have thereby been sacrificed, for decades or even centuries This has led to several severe consequences, such as environmental pollution, climate change, biodiversity loss, etc. The continually worsening situation has raised people’s awareness of how their activities can affect their surroundings and urged us to find innovative practices that could mutually benefit economic growth and environmental sustainability. This social phenomenon has led to the popularity of corporate social responsibility (CSR) in recent years. It can be defined as strategies that firms use to conduct their business in an ethical and society-friendly way
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