Trade-Offs Between Asset Location and Proximity to Home: Evidence From REIT Property Sell-Offs

Journal of Real Estate Finance and Economics, 2020

46 Pages Posted: 9 Jun 2020 Last revised: 20 Aug 2020

See all articles by Chongyu Wang

Chongyu Wang

The University of Hong Kong

Tingyu Zhou

Florida State University

Date Written: May 13, 2020

Abstract

We examine property sell-offs by real estate investment trusts (REITs) and find that investors respond favorably to sales of properties located close to a sell-off firm’s headquarters. The negative relationship between the distance from headquarters and cumulative abnormal returns (CARs) that we document exists only in non-gateway markets, though; there is no such relationship in gateway markets. This finding suggests that the positive effects of selling assets in small markets with high perceived risk and limited growth opportunities dominate the negative effects of the efficiency loss brought about by holding assets far away from home. This is the first study to simultaneously examine the proximity of a firm’s underlying assets to its headquarters and the location of individual assets in the context of asset sales. Our results are robust to several measures of proximity (using geographic distance, in miles, between a firm’s headquarters and its underlying assets or a nearby dummy for below-median distance), to alternative market classifications, to the inclusion of various fixed effects and controls for geographic concentrations (the Herfindahl index of how close to one another the properties are located) and property performance, and to bargaining power and business cycles.

Keywords: REITs, Asset Sell-offs, Distance, Asset Location, Cumulative Abnormal Returns (CARs)

JEL Classification: G11, G14, L20, D80

Suggested Citation

Wang, Chongyu and Zhou, Tingyu, Trade-Offs Between Asset Location and Proximity to Home: Evidence From REIT Property Sell-Offs (May 13, 2020). Journal of Real Estate Finance and Economics, 2020, Available at SSRN: https://ssrn.com/abstract=3600365 or http://dx.doi.org/10.2139/ssrn.3600365

Tingyu Zhou

Florida State University ( email )

821 Academic Way
Tallahassee, FL 32306
United States

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