Abstract
Conventional wisdom has it that for non-real estate firms real estate investments reduce shareholder value. This study introduces product market competition as a critical determinant of the net effect of real estate ownership on firm value. If real estate ownership is an integral part of capacity strategies in oligopolistic industries to protect the economic rents of incumbent firms, such capital investments are likely viewed favorably by investors. Using a large sample of public non-real estate firms over 1973-2010, this study presents robust supporting evidence by examining the return characteristics of a synthetic long real estate investment strategy consisting of shorting low-real estate stocks and holding high-real estate stocks. Controlling for product market competition facilitates identification of the endogenous relation between real estate ownership and stock returns.
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