REIT Capital Budgeting and Equity Marginal Q

32 Pages Posted: 13 Oct 2009

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Dong Wook Lee

affiliation not provided to SSRN


Equity marginal q is the change in the market value of a company's equity in response to a one-unit unexpected change in its asset base. Hence, it is a profitability index that evaluates a firm's capital budgeting decisions at the margin. We estimate the equity marginal q for real estate–managing public corporations, namely, real estate investment trusts (REITs), in an attempt to understand how the various costs and benefits of being a public corporation play a role in managing this important asset class. Using the universe of equity REITs for the period from 1993 to 2005, we find that REITs with greater idiosyncratic volatility, higher stock turnover and smaller bid-ask spread have a higher equity marginal q. In addition, both the holdings of institutional investors and their investment horizons are respectively positively related to equity marginal q. With these firm characteristics taken into account, firm size is found to be negatively related to equity marginal q. Our findings are economically important as well, because the equity marginal q ratio alone accounts for approximately one-third of the total REIT shareholder wealth change during the study period.

Suggested Citation

Ambrose, Brent W. and Lee, Dong Wook, REIT Capital Budgeting and Equity Marginal Q. Real Estate Economics, Vol. 37, Issue 3, pp. 483-514, Fall 2009. Available at SSRN: or

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Dong Wook Lee

affiliation not provided to SSRN

No Address Available

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