What affects the discount to net asset value in the UK-listed property companies?

Abstract

This paper investigates empirically the factors that have affected the discount to net asset value (NAV) in the UK-listed property companies between 2005 and 2013. The prime focus has been on the impact of corporate governance mechanisms. The test results show significantly positive relations of the discount to NAV with firm-specific characteristics such as debt-to-asset ratio, tax and risk, but negative relations with firm size and stock return. Companies with a focused investment strategy have a lower level of discount, while those with an international property portfolio have a higher discount. Market sentiment and property share liquidity also have a significant impact on the discount. It was found that board independence can reduce the level of discount to NAV. The level of insider ownership has a positive relation with discount, indicating the existence of the entrenchment effect. The firm with higher level of insider ownership is usually small and less liquid, thus has higher level of discount.