Development Involvement and Property Share Performance: International Evidence

Posted: 6 Jan 2004

See all articles by Dirk Brounen

Dirk Brounen

Erasmus University Rotterdam (EUR) - Department of Financial Management; Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Piet M. A. Eichholtz

University of Maastricht - Limburg Institute of Financial Economics (LIFE)

Abstract

This paper concerns the dilemma whether regulators should preclude tax-exempt property investment companies from engaging in property development activities. We analyze the economic effects of combinations of property investment and property development by looking at the performance of an international set of property investment companies with varying degrees of involvement in property development. We study the five most important listed property markets in the world: the United States, Hong Kong, Australia, the United Kingdom, and France. We examine the extent to which property investment companies participate in development projects by dividing the books value of their development projects by total assets. These development ratios yield remarkable differences both within and across national samples, with national averages varying between 2.23% for the United States and 21.34% for our Hong Kong sample. Analysis of property share performance yields results that consistently indicate that the cluster of property companies most involved in development projects is associated with both the highest total return and the highest systematic risk. We also find a weak positive link between development involvement and the Jensen alpha of property shares. The statistical significance of this link varies by country, with strong results for Hong Kong and Australia and less compelling results for The United States, the United Kingdom and France. Besides analyzing the stock performance of the companies in our samples we also focus on their operational profitability. Again we consistently find both the highest and most volatile performance for companies actively participating in property development projects.

Keywords: Property development, Risk adjustment, and Listed property companies

Suggested Citation

Brounen, Dirk and Eichholtz, Piet M. A., Development Involvement and Property Share Performance: International Evidence. Available at SSRN: https://ssrn.com/abstract=478044

Dirk Brounen

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

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Erasmus Research Institute of Management (ERIM) ( email )

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Tinbergen Institute ( email )

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Piet M. A. Eichholtz (Contact Author)

University of Maastricht - Limburg Institute of Financial Economics (LIFE) ( email )

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Maastricht, 6200 MD
Netherlands
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+31 43 3258530 (Fax)

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