The Revival of Business Groups’ Risk Sharing: Evidence from Japanese Real Estate Investment Trust Market

We examine the business groups’ risk-sharing hypothesis in the Japanese Real Estate Investment Trust (REIT) market in which the unique external management system seems to be reinforcing power relationships among firms affiliated with the modern Japanese business groups, called keiretsu. We find that REITs whose sponsors belong to one of the keiretsu groups (keiretsu REITs) have significantly lower volatility of profitability than REITs whose sponsors do not belong to the keiretsu groups (non-keiretsu REITs). There is no significant difference in profitability between keiretsu REITs and non-keiretsu REITs, controlling for firm and property characteristics. The abnormal portion of the profitability unexplained by firm characteristics is also significantly lower with keiretsu REITs. We also find that the keiretsu affiliation reduces the systematic volatility of affiliated REITs, while such an effect is not observed with the idiosyncratic volatility, suggesting that the risk-sharing effect may be beneficial for the value of REITs. Using the difference-in-differences design with propensity score matching, we find that the negative impact of the Great East Japan Earthquake on the profitability was significantly smaller with keiretsu REITs than with non-keiretsu REITs. Keiretsu REITs were also able to stabilize their capital structure by shifting some short-term debts to long-term debts without increasing the cost of loans under the uncertain situation caused by the Earthquake. Keiretsu REITs were able to borrow money from their affiliated group banks even right after the earthquake, while non-keiretsu REITs seem to have struggled to secure loans from those banks.

Can textual analysis solve the underpricing puzzle? A US REIT study

PurposeAlthough many theories aim to explain initial public offering (IPO) underpricing, initial-day returns of US Real Estate Investment Trust (REIT) IPOs remain a “puzzle”. The literature on REIT IPOs has focused on indirect quantitative proxies for information asymmetries between REITs and investors to determine IPO underpricing. This study, however, proposes textual analysis to exploit the qualitative information, revealed through one of the most important documents during the IPO process – Form S-11 – as a direct measure of information asymmetries.Design/methodology/approachThis study determines the level of uncertain language in the prospectus, as well as its similarity to recently filed registration statements, to assess whether textual features can solve the underpricing puzzle. It assumes that uncertain language makes it more difficult for potential investors to price the issue and thus increases underpricing. Furthermore, it is hypothesized that a higher similarity to previous filings indicates that the prospectus provides little useful information and thus does not resolve existing information asymmetries, leading to increased underpricing.FindingsContrary to expectations, this research does not find a statistically significant association between uncertain language in Form S-11 and initial-day returns. This result is interpreted as suggesting that uncertain language in the prospectus does not reflect the issuer's expectations about the company's future prospects, but rather is necessary because of forecasting difficulties and litigation risk. Analyzing disclosure similarity instead, this study finds a statistically and economically significant impact of qualitative information on initial-day returns. Thus, REIT managers may reduce underpricing by voluntarily providing more information to potential investors in Form S-11.Practical implicationsThe results demonstrate that textual analysis can in fact help to explain underpricing of US REIT IPOs, as qualitative information in Forms S-11 decreases information asymmetries between US REIT managers and investors, thus reducing underpricing. Consequently, REIT managers are incentivized to provide as much information as possible to reduce underpricing, while investors could use textual analysis to identify offerings that promise the highest returns.Originality/valueThis is the first study which applies textual analysis to corporate disclosures of US REITs in order to explain IPO underpricing.

TECHNICAL, SCALE AND MANAGERIAL EFFICIENCIES IN MALAYSIAN REITS: A NON-PARAMETRIC APPROACH

The paper examined technical, managerial and scale efficiencies scores of Malaysian Real Estate Investment Trust (M-REITs). A non-parametric approach of VRS-DEA examined the input and output variables to determine REIT efficiency. We examined their determinants using GLS regression in the second stage. On average, the M-REIT industry has faced technical inefficiency, that involves scale and managerial inefficiencies. This paper presents new estimates through discussion on return as REIT output. The empirical results indicate Islamic REITs exhibited higher efficiency scores than their counterparts. The results from GLS regression analysis suggest that efficient REITs are smaller in size with higher concentration in property sector and geographical area. Having examined these values, there is still some catching-up for the inefficient REITs in the sample to be more competitive to stay relevant in the global market.

Spillovers and Dynamic Correlations between REITs, Exchange Rates, and Equities in Japan

This paper investigates return transmission, volatility spillovers, and dynamic correlations between the Tokyo Stock Exchange (TSE) Real Estate Investment Trust (REIT) index, the Nikkei 225 index, and the yen/dollar exchange rate. As a result, we find many new findings and these all show our significant contributions as follows. First, there is return transmission from the Nikkei 225 to the TSE REIT index. Second, there is bidirectional return transmission between the Nikkei 225 and the yen/dollar exchange rate. Third, there are bidirectional volatility spillovers between the Nikkei 225 and the TSE REIT index. Fourth, there are volatility spillovers from the Nikkei 225 to the yen/dollar exchange rate. Fifth, dynamic conditional correlations (DCCs) between TSE REIT returns and Nikkei 225 returns are not low. Moreover, DCCs between Nikkei 225 returns and yen/dollar exchange rate changes are not high. Furthermore, DCCs between TSE REIT returns and yen/dollar exchange rate changes are quite low. These our new findings shall be useful for not only deepening our understanding of financial markets but also our related future research.

On the Dynamics of International Real-Estate-Investment Trust-Propagation Mechanisms: Evidence from Time-Varying Return and Volatility Connectedness Measuress

In this paper, we investigate the time-varying interconnectedness of international Real Estate Investment Trusts (REITs) markets using daily REIT prices in twelve major REIT countries since the Global Financial Crisis. We construct dynamic total, net total and net pairwise return and volatility connectedness measures to better understand systemic risk and the transmission of shocks across REIT markets. Our findings show that that REIT market interdependence is dynamic and increases significantly during times of heightened uncertainty, including the COVID-19 pandemic. We also find that the US REIT market along with major European REITs are generally sources of shocks to Asian-Pacific REIT markets. Furthermore, US REITs appear to dominate European REITs. These findings highlight that portfolio diversification opportunities decline during times of market uncertainty.