Property development activities: value creation or distraction for REITs?

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Woei Chyuan Wong ◽  
Joseph T.L. Ooi
Keyword(s):  
Value Creation ◽  
Global Financial Crisis ◽  
Univariate Analysis ◽  
Tobin’S Q ◽  
Property Market ◽  
Property Development ◽  
Development Activity ◽  
Tobin's Q ◽  
Content Type ◽  
Run Up

PurposeThis paper examines the evolution and impact of property development activities on REIT performance. The paper provides insights on whether REITs should venture into property development in addition to their core-business of holding income producing properties.Design/methodology/approachThis paper charts and highlights the evolution of development activities of US REITs from 1992 to 2020. The Tobin's Q of property developing REITs and non-property developing REITs are compared using univariate analysis.FindingsDevelopment activities of US REITs grew dramatically during the run up to global financial crisis (GFC) in 2008. The level of development activities has dropped since the GFC and it has not return to its pre-crisis peak. In comparison, development activities of listed property investment companies and homebuilders are less volatile over the same period. The data reveals that property developing REITs enjoy significantly higher Tobin's Q as compared to their non-developing counterparts.Practical implicationsOur graphical evidence from a market without development restriction suggests that development restriction in other REIT regimes has it value in limit REITs' excessive risk-taking tendency during a booming property market. The positive relationship between Tobin's Q and the existence of property development activity support the value creation of this business activity to REITs.Originality/valueThis paper raises overbuilding as a potential cause of the underperformance of the REIT sector during the GFC.

scholarly journals “Look on the bright side”: CEO optimism and firms' market valuation

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Salah Alshorman ◽  
Martin Shanahan
Keyword(s):  
Firm Value ◽  
Global Financial Crisis ◽  
Firm Valuation ◽  
Economic Stress ◽  
Market Valuation ◽  
Tobin’S Q ◽  
Sample Period ◽  
Tobin's Q ◽  
Content Type ◽  
The Global Financial Crisis

Purpose Previous research suggests that a CEO’s attitude can impact a firm’s performance. More particularly, there appears to be a link between the CEO’s revealed level of optimism and firm’s market value. The purpose of this paper is to measure the level of optimism revealed by Australian CEOs in their shareholder letters and compares this with their firms’ current and future valuations. Design/methodology/approach This study assesses the CEO’s level of optimism using text analysis of the annual letters to shareholders in 180 Australian-based firms from 2010 to 2013. The market valuation of their companies over the same period is calculated using Tobin’s Q, and the results compared with the level of CEO optimism. Findings Comparing the level of revealed optimism with their firms’ valuations over four years, CEO optimism is positively correlated, both currently and prospectively with firm valuation. Given the period under study immediately followed the global financial crisis (GFC), the results suggest CEO optimism may be an important factor in adding to firm’s market resilience. Research limitations/implications The study examines the link between revealed CEO optimism and firm valuation over a turbulent period of the business cycle. While the sample period follows the GFC, and Tobin’s Q has some known deficiencies, the results imply that further research should be undertaken to examine the importance of CEOs tone and communicated attitudes on their firms’ financial outcomes. Practical implications The link between CEO optimism and the firm’s valuation suggest that shareholders and boards should pay particular attention to the values, cognitions and psychological and demographic characteristics of top executives when selecting CEOs. In particular, the results suggest that given two otherwise similar CEOs the one whose record of communication is optimistic should be preferred over a similarly qualified but less sanguine individual. Originality/value The paper represents the first study demonstrating the link between CEO’s communicated optimism and Australian firms’ valuations. The study uses three different measures of optimism to improve the robustness of its conclusions, and a comprehensive measure of firm value – Tobin’s Q. It is the first to quantify the association between CEO optimism and firm value shortly after a period of financial upheaval (the GFC). The findings indicate that CEO optimism contributes significantly to firm value. The study also tests whether “excessive” optimism negatively impacts firm performance and conclude there is no evidence of this in the sample period. The study suggests that more research should be done to examine the contribution of positive business attitudes to periods of economic stress.

Indirect financial distress costs in non-financial firms: evidence from an emerging market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Farooq ◽  
Shahzadah Fahed Qureshi ◽  
Zahra Masood Bhutta
Keyword(s):  
Financial Distress ◽  
Intangible Assets ◽  
Emerging Market ◽  
Investment Policy ◽  
Tobin’S Q ◽  
Optimal Model ◽  
Tobin's Q ◽  
Content Type ◽  
Tangible Assets ◽  
Financially Distressed

Purpose This study aims to analyse 508 financially distressed firm-year observations for the period 2010–2018 of Pakistan Stock Exchange (PSX) listed firms to examine the magnitude of indirect financial distress costs (IFDC) and to investigate which firm-specific variable is relatively important in explaining these indirect costs. This will not only enrich empirical literature but also helpful in cross-country comparison. Design/methodology/approach Optimal model selection along with panel data analysis technique is used to select the most optimal model to observe the findings. Financial distress is measure through Altman’s Z-score and firm-specific variables cover leverage, level of intangible assets, investment policy, tangible assets, firm’s size, level of liquid assets and Tobin’s Q of sample firms. Findings The findings of this study show that the average size of IFDC for the sample observations is 6.70%. In addition to this, finding further suggest that leverage, the level of intangible assets and changes in investment policy have positive while the size of the firm and Tobin’s Q have a significant negative impact on IFDC. Further, this paper argues that the level of tangible assets and liquid assets are statistically unimportant in observing the IFDC for PSX financially distressed firm-year observations. Practical implications The findings of this study provide more insight to corporate managers and investors about the association between firm-specific financial characteristics and IFDC concerning Pakistani firms. Furthermore, this study contributes to the existing literature by adding new evidence from developing countries such as Pakistan which are helpful for regulatory bodies and policymakers in the formulation of long-term strategies to manage the financial distress costs. Originality/value The study extends the body of existing literature on IFDC regarding Pakistan. The results suggest that policymakers may pay special attention to the quality of a firm’s capital structure strategies while predicting corporate financial distress costs.

Corporate governance mechanisms and corporate performance of firms in Nigeria and Ghana

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Martha Coleman ◽  
Mengyun Wu
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Financial Distress ◽  
Corporate Performance ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Content Type ◽  
Structure Index ◽  
The Impact ◽  
The Relationship

PurposeThis study investigates the impact of corporate governance (CG) mechanisms with inclusion of compliance and diligence index on corporate performance (CP) of firms in Nigeria and Ghana. It further examines the moderating effect of financial distress on the relationship between CG and CP.Design/methodology/approachThe study used panel data of 102 nonfinancial listed firms of Nigeria and Ghana stock exchange for the period 2012–2016 with total observation of 510. The study first used OLS in estimating the influence of CG mechanisms on CP. Due to multicollinearity in the independent variables, ridge regression was employed.FindingsIt was revealed that ownership structure index and board compliance and diligence index, board size, board disclosure, ownership structure, shareholders' right and board compliance and diligence index had positive influence on ROA and ROE. Growth of Tobin's Q depends on board procedure and board compliance and diligence index. Also, financial distress (ZFS) negatively moderates the relationship between board structure index, board disclosure index, board procedure index, shareholders' right and performance (ROA and ROE) but negatively moderates between ownership structure index and Tobin's Q.Practical implicationsThis study provides interesting findings to policymakers in full implementation of CG codes as stated by OCED (2015) by West African firms with greater emphasis on compliance and diligence index since it positively influences all CP measures.Originality/valueThe study provides evidence of the importance of the introduction of the new index: compliance and diligence, which looks at disclosure of CSR activities. This has been overlooked by most researchers especially in Africa in assessing quality CG mechanisms.

Reconsidering the role of Tobin’s Q

2015 ◽  
Vol 32 (2) ◽  
pp. 222-234 ◽  
Author(s):  
Mark J. Holmes ◽  
Nabil Maghrebi
Keyword(s):  
Error Correction ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Content Type ◽  
Investment Expenditure ◽  
Long Run ◽  
The Impact ◽  
The Relationship ◽  
Long Run Equilibrium ◽  
Real Investment

Purpose – The purpose of this study is to investigate nonlinearities in the behavior of investment expenditure. Conventional wisdom suggests that Tobin’s Q criterion is an important explanation of investment behaviour that bridges the financial and real sides of the economy. However, the empirical evidence in support of Q as a means of explaining aggregate business investment is rather weak. We answer a number of questions about the relationship between investment expenditure and Q. In particular, is the relationship governed by non-linearities? If so, what is the nature of the non-linearities present? Design/methodology/approach – The rationale for paying closer attention to non-linearities is based on the presence of information asymmetries and possible dependence of adjustments on non-linearities with respect to factors such as fixed costs, threshold effects and irreversibility, which are entertained in the investment literature. Using the non-linear vector error-correction model procedure advocated by Hansen and Seo, we show that in the context of the US economy, investment has a long-run relationship with Q that is based on threshold error correction. Findings – There are asymmetries present with respect to error correction or the speed of adjustment towards long-run equilibrium. We find that investment expenditure only responds significantly to long-run disequilibrium from Q during a particular regime. Such a regime is characterised by long-run disequilibrium based on high or rising investment expenditure compared with a relatively weak stock market. Originality/value – The authors provide new insights into the relationship between Tobin’s Q and real investment. In contrast to previous work, they find that error correction based on the adjustment of real investment is regime-specific and function of the size of departures from long-run equilibrium. The tests also allow for the identification of periods when error correction has occurred. Not only are these insights significant for future research on financial crises, market volatility and the impact of debt, but for policymaking purposes as well.

Effect of Financial Leverage on Firm's Market Value Creation in Bangladesh

2017 ◽  
Vol 4 (2) ◽  
pp. 41-58
Author(s):  
Syed Md. Khaled Rahman
Keyword(s):  
Value Creation ◽  
Tobin’S Q ◽  
Financial Leverage ◽  
Tobin's Q ◽  
Book Value ◽  
Explanatory Variables ◽  
Basic Objective ◽  
Equity Ratio ◽  
The Impact ◽  
Domestic Companies

This article contends that a firm's performance is affected by various factors and capital structure is one of the factors among them. The basic objective of the research is to analyze and compare the impact of financial leverage on firms' Market to Book Value (MV/BV) and Tobin's Q ratio of DSE-listed MNCs & domestic firms of Bangladesh over a 20-year period (1996-2015). Explained variables are Market to Book Value (MV/BV) and Tobin's Q ratio. Explanatory variables of the interest are indicators of six financial leverage ratios. MV/BV is negatively related with leverage ratios of both types of companies. Domestic companies' MV/BV decreases by 0.016 times for 1% increase of debt ratio while MNCs' MV/BV decreases by 0.048 times for 1% increase of debt-equity ratio and vice-versa. With debt-equity ratio, domestic companies' Tobin's Q is positively related while that of MNCs is negatively related.

Board characteristics and firm value for Indian companies

2018 ◽  
Vol 10 (1) ◽  
pp. 2-32 ◽  
Author(s):  
Rakesh Kumar Mishra ◽  
Sheeba Kapil
Keyword(s):  
Decision Making ◽  
Corporate Governance ◽  
Firm Performance ◽  
Firm Value ◽  
Corporate Performance ◽  
Strategic Decision ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Content Type ◽  
Board Characteristics

Purpose This paper aims to explore the relationship between board characteristics and firm performance for Indian companies. Design/methodology/approach Corporate governance structures of 391 Indian companies out of CNX 500 companies listed on National Stock Exchange have been studied for their impact on performance of companies. Panel data regression methodology has been used on data for five financial years from 2010 to 2014 for the selected companies. Performance measures considered are market-based measure (Tobin’s Q) and accounting-based measure (return on asset [ROA]). Findings The empirical findings indicate that the market-based measure (Tobin’s Q) is more impacted by corporate governance than the accounting-based measure (ROA). There is a significant positive association between board size and firm performance. Board independence is found significantly related to firm performance. Number of board meetings is found to be sending positive signal to the market creating firm value. Separation of chief executive officer and chairman of the board is found to be value-creating, and overburdened directors affect firm performance adversely. Research limitations/implications Limitations of the study are in terms of methodology and possible omission of some variables. It is understood that the qualitative dynamics happening inside board meetings impact corporate performance. The strategic decision-making process adopted by the boards to fight competition or to increase market share is not easily available in public domain. The decision-making processes and monitoring for implementation of those decisions could impact corporate governance performance relationship. These parameters and their impact on corporate performance are not covered under the scope of the present study. Originality/value The paper adds to the emerging body of literature on corporate governance performance relationship in the Indian context by using a reasonably wider and newer data set.

Effect of ownership structure and board structure on firm value: evidence from India

2017 ◽  
Vol 17 (4) ◽  
pp. 700-726 ◽  
Author(s):  
Rakesh Mishra ◽  
Sheeba Kapil
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Performance Measures ◽  
Board Structure ◽  
Tobin’S Q ◽  
Reverse Causality ◽  
Tobin's Q ◽  
Data Set ◽  
Content Type ◽  
The Relationship

Purpose This paper aims to explore the relationship of promoter ownership and board structure with firm performance for Indian companies. Design/methodology/approach Corporate governance structures of 391 Indian companies out of CRISIL NSE Index (CNX) 500 companies listed on national stock exchange (NSE) have been studied for their impact on performance of companies. Panel data regression methodology has been used on data for five financial years from 2010 to 2014 for the selected companies. Performance measures considered are market-based measure (Tobin’s Q) and accounting-based measure (return on assets [ROA]). Findings The empirical findings indicate that market-based measure (Tobin’s Q) is more impacted by corporate governance than accounting-based measure. There is significant positive association between promoter ownership and firm performance. It is also indicated that the relationship between promoter ownership and firm performance is different at different levels of promoter ownership. Board size is found to be positively related to ROA; however, board independence is not found to be related to any of the performance measures. Research limitations/implications Limitations of the study are in terms of data methodology and possible omission of some variables. It is felt that endogeneity and reverse causality might be better addressed using simultaneous equation methodology. Originality/value The paper adds to the emerging body of literature on corporate governance performance relationship in Indian context using a reasonably wider and newer data set.

scholarly journals Intellectual capital and Tobin’s Q as measures of bank performance

Accounting ◽  
2021 ◽  
Vol 7 (7) ◽  
pp. 1695-1700
Author(s):  
Esra A. Al Nsour ◽  
Ahmad A. Al Dahiyat ◽  
Sulaiman Weshah
Keyword(s):  
Human Capital ◽  
Financial Performance ◽  
Intellectual Capital ◽  
Value Creation ◽  
Stock Exchange ◽  
Value Added ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Amman Stock Exchange ◽  
Capital Efficiency

This paper aims at examining the effect of the Value Added by Intellectual Capital (VAIC) in terms of its three components: capital employed efficiency, human capital efficiency, and structure capital efficiency on the financial performance of commercial banks listed on the Amman Stock Exchange for the period 2010–2018.Value Added of Intellectual Capital (VAIC) model was used to measure the intellectual capital while Tobin’s Q ratio was used as an indicator of bank financial performance. The study has used parametric techniques like multiple linear regression and correlation coefficient, and other statistical methods to investigate its hypothesis. It was found that only human capital efficiency and capital employed efficiency had impacts on the banks’ financial performance. These results emphasize the importance of using the VAIC model to evaluate the financial performance of these banks, as well as encourage banks to make further investments in intellectual capital’s components, and concentrate on human resources to build up their knowledge, skills and capabilities, because of their greatest role in value creation.

Non-linear relationship of board size and board independence with firm performance – evidence from India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Srikanth Potharla ◽  
Balachandram Amirishetty
Keyword(s):  
Financial Performance ◽  
Linear Relationship ◽  
Fixed Effects ◽  
Board Independence ◽  
Tobin’S Q ◽  
Board Size ◽  
Tobin's Q ◽  
Content Type ◽  
Non Linear ◽  
Relationship Of

Purpose This study aims to examine the significance of the non-linear relationship of board size and board independence on the financial performance of listed non-financial firms in India. Design/methodology/approach The study draws the sample of the listed non-financial firm in the Indian market from the year 2011–2018 and applied panel least squares regression with and without industry fixed effects on the model with quadratic equation. Quantile regression is also used to test the robustness of the results. The financial performance is measured through one accounting measure (i.e. return on assets [ROA]) and one market-based measure (i.e. Tobin’s Q). The empirical model also controls firm-specific variables which are expected to have an impact on financial performance. Findings The study found that the relationship of board size and board independence with the financial performance of a firm is in a non-linear inverted U-shape. The results are qualitatively similar for both ROA and Tobin’s Q after controlling industry fixed effects. Originality/value This is the first study in India which tests the non-linear relationship of board size and board independence with the financial performance of the firm. The study contributes to the limited literature on the implications of board characteristics on the performance of the firms in India.

Financial determinants of value based performance of construction firms in India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Harish Kumar Singla ◽  
Anand Prakash
Keyword(s):  
Research And Development ◽  
Geographic Location ◽  
Performance Measure ◽  
Error Component ◽  
Tobin’S Q ◽  
Construction Sector ◽  
Tobin's Q ◽  
Industrial Construction ◽  
Content Type ◽  
Construction Firms

PurposeThe purpose of the study is to examine the value-based performance of firms in construction sector in India using Tobin's Q and Market Capitalization (MCAP) and then determine their significant financial drivers.Design/methodology/approachThe study is based on data from 87 firms engaged in infrastructure, real estate, industrial construction and allied areas in India over a study period of 10 years. Three distinct forms of panel regression models have been developed using Tobin's Q and MCAP as dependent variables. The models developed are using Baltagi's (1981) Error Component 2SLS, Varadharajan-Krishnakumar's (1987) Generalized 2SLS and Arellano – Bower/Blundell – Bond's (1991) dynamic panel.FindingsThe study found that MCAP is a better suited value-based performance measure for construction sector firms in India. The study further reports that the age of the firm, profit after tax, investment in research and development, dividends, leverage and net fixed asset are significant positive drivers, whereas cash flow is a significant negative driver.Research limitations/implicationsThe study is limited to a geographic location; therefore, the findings of this study cannot be generalized.Practical implicationsAs MCAP is a better suited value-based performance measure of a firm in the construction sector, managers should focus on improving profitability, higher research and development activities, higher dividends and higher expenditures on net fixed assets for improvement.Originality/valueThis is an original attempt to examine the value-based performance of firms in the construction sector in India using Tobin's Q and MCAP.

Sign in / Sign up

Export Citation Format

Share Document