Corporate Real Estate Ownership and Productivity Uncertainty
Real Estate Economics, Forthcoming
Posted: 20 Mar 2015
Date Written: February 27, 2015
Abstract
This paper empirically tests the relationship between corporate real estate (CRE) holdings and productivity risks of firms. Using a large sample of public listed US firms for the period from 1984 to 2011, we show that CRE ownership is significantly and negatively correlated with productivity risks of firms. Firms with high productivity risk own less CRE assets. When testing dynamic changes to CRE holdings, we estimate a significant and positive elasticity of CRE investments of 5.2% in response to cash flow shocks. If the adjustment cost is high, high risk firms are expected to hold less CRE assets, so that they could reduce potential losses associated with CRE holdings when negative productive shocks occur.
Keywords: Corporate real estate; Productivity shock; Investment on real estate; Irreversibility discounts, Uncertainty
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