The Impact of Underpricing of the Default Risk on Investment: Evidence from Real Estate Investment Trusts (REITs)

42 Pages Posted: 31 Oct 2019

See all articles by Linh Nguyen

Linh Nguyen

RWTH Aachen University - Department of Finance; Banking University Ho Chi Minh City

Bertram I. Steininger

KTH Royal Institute of Technology; ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management

Date Written: October 21, 2019

Abstract

This study examines the impact of under-priced default risk on investment in the real estate investment trust (REIT) sector, where firms’ investment is highly sensitive to changes in credit market conditions. The findings reveal that REITs exploiting under-priced default risk have a higher level of investment than their peers because the former can access low-cost capital. Moreover, exploiting the under-priced default risk is specific to not only REITs but also to the whole real estate investment sector. In contrast, under-priced default risk has an insignificant impact on investment of non-real estate firms because non-recourse loans are unpopular in these firms.

Keywords: default risk, investment, real estate investment trust (REIT), under-pricing of the default risk

JEL Classification: G21, G32

Suggested Citation

Nguyen, Linh D. and Steininger, Bertram I., The Impact of Underpricing of the Default Risk on Investment: Evidence from Real Estate Investment Trusts (REITs) (October 21, 2019). Available at SSRN: https://ssrn.com/abstract=3473693

Linh D. Nguyen (Contact Author)

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
Aachen, 52056
Germany

Banking University Ho Chi Minh City ( email )

Ho Chi Minh City
Vietnam

Bertram I. Steininger

KTH Royal Institute of Technology ( email )

Stockholm
Sweden

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management ( email )

Postfach 103443
Mannheim, D-68034
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
9
Abstract Views
59
PlumX Metrics