Information Asymmetries, Financial Constraints and Institutional Investment: Evidence from the Real Estate Market

41 Pages Posted: 24 Oct 2019

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Warwick Business School, University of Warwick

Stanimira Milcheva

University College London

Alex Van de Minne

University of Connecticut - Department of Finance

Date Written: October 15, 2019

Abstract

In this paper we analyze the underlying economic mechanisms that might be driving the observed patterns in commercial real estate prices, as an interplay between buyer and seller characteristics (in terms of their size, capital constraints and market knowledge), and the timing and geographical location of these transactions. By jointly modelling the institutional investors' decision to invest in a particular real estate market and the effect of such decision on real estate prices and probability of sale, we find that, controlling for property-, and time-varying location specific-, as well as investor characteristics: largest buyers (sellers) tend to pay (sell for) a price premium for the otherwise identical property at the time of purchase (sale), relative to smallest buyers (sellers). Keeping investor size and investor financing constraints constant, more informed sellers tend to sell at a premium, while more informed buyers tend to buy at a discount. Furthermore, more informed sellers (buyers) are more likely to sell (buy), providing support to the argument that reduction in information asymmetry has a positive effect on asset liquidity. These results point to a significant role of private valuations and investor market informedness in commercial real estate markets, when financing choice is taken into account.

Suggested Citation

Cvijanovic, Dragana and Milcheva, Stanimira and Van de Minne, Alex, Information Asymmetries, Financial Constraints and Institutional Investment: Evidence from the Real Estate Market (October 15, 2019). Available at SSRN: https://ssrn.com/abstract=3470384 or http://dx.doi.org/10.2139/ssrn.3470384

Dragana Cvijanovic (Contact Author)

Warwick Business School, University of Warwick ( email )

Coventry CV4 7AL
United Kingdom

Stanimira Milcheva

University College London ( email )

1-19 Torrington Place
Department of Construction and Project Management
London, London WC1E 7HB
United Kingdom

Alex Van de Minne

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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