Corporate Real Estate Sale and Leaseback Effect: Empirical Evidence from Europe
28 Pages Posted: 6 May 2005
Date Written: November 24, 2004
Abstract
Corporate real estate disposals have increased in Europe during the past few years. In this research paper, we study market reactions of publicly traded European companies' real estate sale and leaseback announcements. The results are in line with the results of Slovin et al. (1990), Rutherford (1990) and Fisher (2004). We find that the sale and leaseback announcements have on average positive impact to firm's value. The results support Lewis and Schallheim's (1992) arguments that leasing and debt are rather complements that substitutes. Leasing can also be seen as a mechanism for selling tax deductions. We also find that the average increase in firms' value is clearly higher in sale and leaseback deals, which size is large in comparison with the market value of the seller-firm. Sale and leaseback arrangements seem to offer potential tax and efficiency gains. These and the release of hidden reserves can lead to the positive valuation effects found in the study.
Keywords: Real Estate, Event Study, Pecking order, Sale and Leaseback
JEL Classification: G14
Suggested Citation: Suggested Citation
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