European Real Estate Companies Research Articles

RETRACTED: The Relationship between CEO Psychological Biases, Corporate Governance and Corporate Social Responsibility

Despite that the relationship between corporate social responsibility activities and real estate operations seems relevant, only some studies have been conducted to explore the reasons that drive these activities in real estate companies. This work presents the relationship between CEO personality traits and corporate social responsibility (CSR) and shows whether corporate governance (CG) practices mitigate or enhance this relationship. This study uses a sample of 420 firm-year-observations using a sample of European real estate firms indexed on Stoxx Europe 600 Index from 2010 to 2019. To test the developed hypotheses, feasible generalized least square (FGLS) regression is applied. The results show that increased confidence in CEOs is an important factor in determining corporate incentives to undertake social responsibility activities. In addition, it has been shown that effective corporate governance practices lead significantly to moderate CEO behavior with regard to corporate social responsibility sharing. Since corporate governance can have a significant impact on CEOs’ behavior in relation to corporate social responsibility, the author recommends firms to improve corporate governance in listed European real estate companies.

Exploring the nexus between CEO psychological biases, corporate social responsibility and corporate governance: evidence from the European real estate companies

This paper investigates the liaison between chief executive officer (CEO) psychological biases and corporate social responsibility (CSR). It uses a sample of 450 European real estate firm-year-obse...

Exploring the nexus between CEO psychological biases, corporate social responsibility and corporate governance: evidence from the European real estate companies

Exploring the nexus between CEO psychological biases, corporate social responsibility and corporate governance: evidence from the European real estate companies

The role of investment property appraisal in European real estate companies

Purpose This paper aims to examine the connection between appraisals of investment properties and earnings properties in companies from two perspectives: what kinds of companies employ the most reputable appraisers and how appraisers produce estimations. Design/methodology/approach The research uses annual reports of European Union (EU) publicly traded real estate companies and examines the period 2007-2016. Findings The contribution of this study lies in establishing that some indicators and features of real estate companies affect the choice of appraiser and also in illustrating differences in the results of property valuations. In short, smaller companies with weaker performance are less willing to use external valuation, and external appraisers produce more conservative estimations for investment properties. Practical implications The research produces beneficial information for investors and other stakeholders interested in the real estate industry. Originality/value This is the first novel study to examine the link between appraisals of investment properties and earnings properties in companies in detail.

Size effects and economies of scale in European real estate companies

This study investigates scale economies in European real estate companies. We examine the effects of size on revenue, expense, profitability ratios and capital costs using panel data regression. We find that larger real estate companies in Europe are able to generate higher revenue per unit of company size, incur lower costs and produce higher returns. Net Operating Income ratios and return ratios increase while Selling, General and Administrative expense ratios decrease with the size of a company. However, we do not find evidence that larger companies have lower cost of debt or lower weighted average cost of capital. From our analysis, it is evident that particularly small firms can reap substantial economies of scale as they grow. However, the benefits of further growth tend to be much more modest for larger companies. Given REITs are on average larger than comparable non-REITs this may explain why REITs have lower economies of scale in expenses and revenues than Non-REIT real estate companies.

The effect of leverage on the performance of real estate companies

PurposeThis paper aims to investigate the impact of leverage on the total shareholder return of European publicly traded real estate vehicles in three periods: Crisis Period (2007-2009), Rebound Period (2009-2014) and the Whole Period.Design/methodology/approachCross-sectional analysis is used and the leverage effect on the performance is controlled for seven other independent variables (local market risk premium, size, book-to-market, short-term debt, cash); moreover, regional differences are accounted for.FindingsIt is established that during the Crisis Period, leverage levels are negatively associated with performance: this relationship also holds throughout the Whole Period, implying that for real estate securities, the cost of financial distress is larger than the potential gain from taxation, although the economic significance of it is limited. The Fama and French (1992) three factors, including size, book-to-market and local market risk premium, are found to be relevant, which is consistent with the literature. In addition, the UK and Sweden regions are identified as significant.Originality/valueEven if there is sizeable body of literature on determinants of leverage and determinants of asset returns, little work has been done on how leverage affects the returns of European real estate companies. In addition, this paper takes advantage of observations from a full economic cycle and the possible effects of the crisis period.

Analyst Coverage, Market Liquidity and Disclosure Quality: A Study of Fair-value Disclosures by European Real Estate Companies Under IAS 40 and IFRS 13

Disclosures in notes have been criticized by practitioners for being unwieldy and contributing little to the quality of the financial information. This study presents evidence on the association between disclosure quality, analyst following and liquidity in the real estate sector. More specifically, we study the disclosure of the methods and significant assumptions applied in determining fair values of investment properties under IAS 40 and IFRS 13. We find that disclosure quality is significantly higher under IFRS 13. Furthermore, we show that the quality is associated with analyst following and bid-ask spreads. However, the improved disclosures following the adoption of IFRS 13 are not associated with any significant positive economic consequences. This result indicates that the revised disclosure requirements in IFRS 13 did not solve any market imperfections.

On the Earnings and Price Momentum Strategies: Evidence from European Real Estate Firms

We test the performance and interaction between earnings and price momentum for European real estate companies by first making use of decile portfolios sorted on the previous 3- to 12-month returns, standardized unexpected earnings and a combination of both. Then, the relation is tested on a risk-adjusted basis employing a 3-factor asset pricing model and Fama and Macbeth (1973) cross-sectional regression analyses. Our analyses reveal several critical findings: (1) both price and earnings momentum are effective for European firms, the effect being stronger for the UK than EU firms; (2) unlike U.S. REITs, price momentum seems to dominate drift for European firms; (3) there is weak evidence for positive interaction between drift and price momentum, contrary to the U.S. evidence; (4) the performance of momentum strategies depends on the state of the economy, while controlling for systematic factors; (5) idiosyncratic risk of real estate property firms may influence the returns on drift and momentum factors.

Ownership Structure and Accounting Method Choice: A Study of European Real Estate Companies

Companies can under IAS 40 Investment Properties choose between the fair value and the cost models. The fair value model arguably results in more relevant information but is also more costly to use. Based on studies suggesting that financial reports are a more important medium for communication with investors if ownership is dispersed, we hypothesize that the use of the fair value model is positively associated with ownership dispersion. We study European Real Estate firms and find support for this prediction. We also find a positive association between trade of shares and ownership dispersion, supporting the view that financial statements are less important if ownership concentration is high. Finally, we examine whether the choice depends on the identity of large owners. Companies with a financial company as the largest owner are somewhat more likely to choose the fair value model. Overall, the results indicate that accounting rules facilitating optional accounting policies have benefits.

Analyst Coverage, Market Liquidity and Disclosure Quality: A Study of Fair-Value Disclosures by European Real Estate Companies Under IAS 40 and IFRS 13

Disclosures in notes have been criticized by practitioners for being unwieldy and contributing little to the quality of the financial information. This study presents evidence on the association between disclosure quality, analyst following and liquidity in the real estate sector. More specifically, we study the disclosure of the methods and significant assumptions applied in determining fair values of investment properties under IAS 40 and IFRS 13. We find that disclosure quality is significantly higher under IFRS 13. Furthermore, we show that the quality is associated with analyst following and bid-ask spreads. However, the improved disclosures following the adoption of IFRS 13 are not associated with any significant positive economic consequences. This result indicates that the revised disclosure requirements in IFRS 13 did not solve any market imperfections.

Cross-Country Differences in Disclosure Quality: A Study of Fair Value Disclosures by European Real Estate Companies.

Companies are under IAS 40 required to report fair values of investment properties on the balance sheet or to disclose them in the notes. The standard requires also that companies have to disclose the methods and significant assumptions applied in determining fair values of investment properties. However, IAS 40 does not include any illustrative examples or other guidance on how to apply the disclosure requirements. We use a sample with publicly traded companies from the real estate sector in the EU. We find that a majority of the companies use income based methods for the measurement of fair values but there are considerable cross-country variations in the level of disclosures about the assumptions used in determining fair values. More specifically, we find that Scandinavian and German origin companies disclose more than French and English origin companies. We also test whether disclosure quality is associated with enforcement quality measured with the “Rule of Law” index according to Kaufmann et al. (2010), and associated with a secrecy-versus transparency-measure based on Gray (1988). We find a positive association between disclosure and earnings quality and a negative association with secrecy.

Performance disclosure in the real estate industry: a case research of analyst reports and corporate financial presentations in Italy

This paper aims to compare the analysts’ reports on Italian publicly listed real estate companies with the information disclosed by the same companies in their presentations of business plans. Considering that the European real estate companies have a strong representative professional association that formulates best practices in reporting and accounting, we design a multiple case qualitative research to investigate if the reporting practices supported by the association enable to have benefits in disclosure transparency in the areas of most relevance to investors, even in a context usually not affected by information asymmetry issues. This study provides evidence that a significant coherence between information released by managers and data used by analysts exists, especially in the description of both the key drivers of profitability and financial structure. However, the analysis specifically reveals a partial discrepancy between companies and analysts in the use of information, due to substantially different purposes of documents.

The net asset value and stock prices of European real estate companies

The net asset value and stock prices of European real estate companies

Fair Value or Cost Model? Drivers of Choice for IAS 40 in the Real Estate Industry

The IFRS mandatory adoption in European countries is an excellent context from which to assess the validity of accounting choice theory, which postulates that information asymmetry, contractual efficiency (agency costs) and managerial opportunism reasons could drive the choice. With this aim, we test the impact of these factors to explain the adoption of fair value for investment properties (IAS 40) in the real estate industry, taking into account the ‘revaluation’ option offered by IFRS1 and using historical cost without revaluations as a baseline category for comparison purposes. We select a sample of European real estate companies from Finland, France, Germany, Greece, Italy, Spain and Sweden, all first-time adopters of the IFRS. Using a multinomial logistic model, we show that information asymmetry, contractual efficiency and managerial opportunism could account for the fair value choice. Particularly, the most significant findings are that size as a proxy of political costs reduces the likelihood of using fair value while market-to-book ratio is negatively associated with the fair value choice. On the other hand, leverage, another typical proxy of contracting costs, seems not to influence the choice. This evidence confirms the current validity of traditional accounting choice theory even if it reveals, in such a context, the irrelevance of the usual relations between accounting choice and leverage.

Performance of European Real Estate Companies: An Empirical Comparison

This paper studies the performance of private property companies in 13 European countries: Austria, Belgium, Denmark, France, Finland, Germany, Greece, Netherlands, Norway, Portugal, Sweden, and the UK for the period of 1990 to 2003. We find large differences between the countries with the most profitable companies found in the Netherlands, Spain, Denmark, and the UK. We use a simultaneous equation framework to model the real estate sector with Profitability and capital structure as endogenous variables. We find that the elements that influence the profitability of the firm in one country are also largely relevant in the other countries but differ in the effect due to different economic conditions and business cycles in different countries. The economic crisis in the early 1990s left a clear mark for the countries suggesting the crisis was pan European. This indicates that business cycle is one important factor in the study of performance of the real estate sector. In addition, there can be potential portfolio gains by spreading the investment over the studied countries. We find a negative effect of borrowing on performance in most of the countries except Sweden, Greece (insignificant). Firm size firm has a weakly positive effect on performance in all countries except for Sweden where it is insignificant. Except for Austria (negative significant), Greece, and Portugal (insignificant), tangibility is related significantly positive to borrowing, but not to profitability.

Continental Shift? An Analysis of Convergence Trends in European Real Estate Equities

This article is the winner of the International Real Estate Investment/Portfolio Management category (sponsored by LaSalle Investment Management) presented at the 2002 American Real Estate Society Annual Meeting.This study investigates the effects of European monetary integration on the behavior of stock returns in European real estate companies from the perspective of a dollar-denominated investor. A range of statistical tests is applied to assess changes in segmentation, co-movement and causality. The results suggest that, relative to the wider equity markets, the dispersion of performance is higher, correlations are lower and a common contemporaneous factor has much lower explanatory power whilst lead-lag relationships are stronger. Less and slower integration is attributed to the relatively small size of the real estate securities market and the local nature of many real estate companies' portfolios.