Pub Date : 2020-07-06DOI: 10.1080/10835547.2021.1967676
Zifeng Feng
This study empirically examines the impact of information asymmetry on the firm-level investment behaviors using the information on U.S. equity real estate investment trusts (REITs). We show that firms with lower levels of information asymmetry, measured as bid-ask spread and stock return volatility, generally experience higher growth on their real estate investment, property investment, and total assets. Those high information asymmetry REITs are also less active in their property acquisition and disposition activities, as well as involve in fewer mergers and acquisitions. Moreover, the paper provides evidence that the levels of information asymmetry are, on average, positively related to the cost of capital, and negatively related to operational performance. Lastly, the study sheds light on the importance of aligning interests of managers with those of stakeholders, by illustrating that executives in firms with a high level of information asymmetry receive higher total pays compared with their pairs.
{"title":"How Does Information Asymmetry Affect REIT Investments? Cost of Capital, Performance, and Executive Compensation","authors":"Zifeng Feng","doi":"10.1080/10835547.2021.1967676","DOIUrl":"https://doi.org/10.1080/10835547.2021.1967676","url":null,"abstract":"This study empirically examines the impact of information asymmetry on the firm-level investment behaviors using the information on U.S. equity real estate investment trusts (REITs). We show that firms with lower levels of information asymmetry, measured as bid-ask spread and stock return volatility, generally experience higher growth on their real estate investment, property investment, and total assets. Those high information asymmetry REITs are also less active in their property acquisition and disposition activities, as well as involve in fewer mergers and acquisitions. Moreover, the paper provides evidence that the levels of information asymmetry are, on average, positively related to the cost of capital, and negatively related to operational performance. Lastly, the study sheds light on the importance of aligning interests of managers with those of stakeholders, by illustrating that executives in firms with a high level of information asymmetry receive higher total pays compared with their pairs.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"5 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-07-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82217503","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Itai Ater, Yael Elster, David Genesove, Eran B. Hoffmann
This paper studies how a Covid-19 lockdown affected residential lease payments. Survey data on 1511 Israeli renter households show nearly one in eight households not paying full rent during the lockdown, with these households holding back, on average, a third of their contractually due rent. Financially fragile households with greater income cuts, and households with leases lacking provisions that effectively provide for damages upon non-payment pay a lower share of contract rent. So do households with more frequent encounters with their landlord, or longer tenure in the apartment. Bargaining and relational contracts theories help explain these results.
{"title":"Agreements Must Be Kept? Residential Leases During Covid-19","authors":"Itai Ater, Yael Elster, David Genesove, Eran B. Hoffmann","doi":"10.2139/ssrn.3659328","DOIUrl":"https://doi.org/10.2139/ssrn.3659328","url":null,"abstract":"This paper studies how a Covid-19 lockdown affected residential lease payments. Survey data on 1511 Israeli renter households show nearly one in eight households not paying full rent during the lockdown, with these households holding back, on average, a third of their contractually due rent. Financially fragile households with greater income cuts, and households with leases lacking provisions that effectively provide for damages upon non-payment pay a lower share of contract rent. So do households with more frequent encounters with their landlord, or longer tenure in the apartment. Bargaining and relational contracts theories help explain these results.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"69 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76536198","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There are two prevailing theories of borrower default: strategic default—when debt is too high relative to the value of the house—and adverse life events—such that the monthly payment is too high relative to available resources. It has been challenging to test between these theories in part because adverse events are measured with error, possibly leading to attenuation bias. We develop a new method for addressing this measurement error using a comparison group of borrowers with no strategic default motive: borrowers with positive home equity. We implement the method using high-frequency administrative data linking income and mortgage default. Our central finding is that only 3 percent of defaults are caused exclusively by negative equity, much less than previously thought; in other words, adverse events are a necessary condition for 97 percent of mortgage defaults. Although this finding contrasts sharply with predictions from standard models, we show that it can be rationalized in models with a high private cost of mortgage default.
{"title":"Why Do Borrowers Default on Mortgages? A New Method for Causal Attribution","authors":"Peter Ganong, P. Noel","doi":"10.2139/ssrn.3661660","DOIUrl":"https://doi.org/10.2139/ssrn.3661660","url":null,"abstract":"There are two prevailing theories of borrower default: strategic default—when debt is too high relative to the value of the house—and adverse life events—such that the monthly payment is too high relative to available resources. It has been challenging to test between these theories in part because adverse events are measured with error, possibly leading to attenuation bias. We develop a new method for addressing this measurement error using a comparison group of borrowers with no strategic default motive: borrowers with positive home equity. We implement the method using high-frequency administrative data linking income and mortgage default. Our central finding is that only 3 percent of defaults are caused exclusively by negative equity, much less than previously thought; in other words, adverse events are a necessary condition for 97 percent of mortgage defaults. Although this finding contrasts sharply with predictions from standard models, we show that it can be rationalized in models with a high private cost of mortgage default.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90167551","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper uses two similar local jurisdiction merger policies at different phases of a housing cycle to examine whether home purchasers form their expectations of future house prices based on lagged price changes. Using a detailed housing transaction data set, we find that, during the boom period, the relative home prices in the merged area increased significantly for a few months after a positive fundamental shock and then reverted. However, during the bust period, we find no overreaction of the relative house prices in the local merged districts after a similar shock. Moreover, we find that short-term speculators may be the main contributor to the housing price overreaction. Overall, our results confirm the role of over-extrapolation in house price dynamics.
{"title":"Extrapolation and House Price Overreaction: Evidence from Local Jurisdiction Mergers","authors":"K. Deng, He Lang, Xiaoxiao Zhou","doi":"10.2139/ssrn.3650847","DOIUrl":"https://doi.org/10.2139/ssrn.3650847","url":null,"abstract":"This paper uses two similar local jurisdiction merger policies at different phases of a housing cycle to examine whether home purchasers form their expectations of future house prices based on lagged price changes. Using a detailed housing transaction data set, we find that, during the boom period, the relative home prices in the merged area increased significantly for a few months after a positive fundamental shock and then reverted. However, during the bust period, we find no overreaction of the relative house prices in the local merged districts after a similar shock. Moreover, we find that short-term speculators may be the main contributor to the housing price overreaction. Overall, our results confirm the role of over-extrapolation in house price dynamics.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"68 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83297824","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper uses a natural experiment in Japan to provide evidence of the feedback loop between corporate borrowing and commercial real estate investment emphasized in macro-finance models with collateral constraints. Japan enacted a series of reforms in the early 1980s which relaxed national regulatory constraints on the height and size of buildings. Combining originally-constructed local commercial land price indices for over 400 localities with geocoded firm balance sheets, I show that these land use deregulations generated a boom-bust cycle in corporate real estate values, borrowing, and real estate investment. Firms located in more ex ante land use constrained areas both issued more debt and invested more heavily in real estate, thus amplifying the initial positive shock to commercial real estate prices. I develop a multi-city spatial sorting model with production externalities and real estate collateral which uses the estimated reduced form effects of my local regulatory instruments on firm outcomes to assess aggregate effects of the reform. I find that the deregulatory shock to commercial real estate markets and corporate borrowing environment amplified the real estate cycle in the 1980s and led to an increased incidence of zombie lending in the 1990s.
{"title":"You Only Lend Twice: Corporate Borrowing and Land Values in Real Estate Cycles","authors":"Cameron LaPoint","doi":"10.2139/ssrn.3633606","DOIUrl":"https://doi.org/10.2139/ssrn.3633606","url":null,"abstract":"This paper uses a natural experiment in Japan to provide evidence of the feedback loop between corporate borrowing and commercial real estate investment emphasized in macro-finance models with collateral constraints. Japan enacted a series of reforms in the early 1980s which relaxed national regulatory constraints on the height and size of buildings. Combining originally-constructed local commercial land price indices for over 400 localities with geocoded firm balance sheets, I show that these land use deregulations generated a boom-bust cycle in corporate real estate values, borrowing, and real estate investment. Firms located in more ex ante land use constrained areas both issued more debt and invested more heavily in real estate, thus amplifying the initial positive shock to commercial real estate prices. I develop a multi-city spatial sorting model with production externalities and real estate collateral which uses the estimated reduced form effects of my local regulatory instruments on firm outcomes to assess aggregate effects of the reform. I find that the deregulatory shock to commercial real estate markets and corporate borrowing environment amplified the real estate cycle in the 1980s and led to an increased incidence of zombie lending in the 1990s.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"65 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-06-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76209101","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper considers the estimation and inference of spatial panel data models with heterogeneous spatial lag coefficients, with and without weakly exogenous regressors, and subject to heteroskedastic errors. A quasi maximum likelihood (QML) estimation procedure is developed and the conditions for identification of the spatial coefficients are derived. The QML estimators of individual spatial coefficients, as well as their mean group estimators, are shown to be consistent and asymptotically normal. Small sample properties of the proposed estimators are investigated by Monte Carlo simulations and results are in line with the paper's key theoretical findings even for panels with moderate time dimensions and irrespective of the number of cross section units. A detailed empirical application to U.S. house price changes during the 1975-2014 period shows a significant degree of heterogeneity in spatio-temporal dynamics over the 338 Metropolitan Statistical Areas considered.
{"title":"Estimation and Inference for Spatial Models with Heterogeneous Coefficients: An Application to U.S. House Prices","authors":"M. Aquaro, Natalia Bailey, M. Pesaran","doi":"10.2139/ssrn.3352931","DOIUrl":"https://doi.org/10.2139/ssrn.3352931","url":null,"abstract":"This paper considers the estimation and inference of spatial panel data models with heterogeneous spatial lag coefficients, with and without weakly exogenous regressors, and subject to heteroskedastic errors. A quasi maximum likelihood (QML) estimation procedure is developed and the conditions for identification of the spatial coefficients are derived. The QML estimators of individual spatial coefficients, as well as their mean group estimators, are shown to be consistent and asymptotically normal. Small sample properties of the proposed estimators are investigated by Monte Carlo simulations and results are in line with the paper's key theoretical findings even for panels with moderate time dimensions and irrespective of the number of cross section units. A detailed empirical application to U.S. house price changes during the 1975-2014 period shows a significant degree of heterogeneity in spatio-temporal dynamics over the 338 Metropolitan Statistical Areas considered.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"28 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87874206","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
After exogenous shocks caused by natural disasters, FinTech lenders satisfy the surge in demand for reconstruction mortgages more than traditional banks and non-FinTech shadow banks. Although both FinTech and traditional bank lenders increase mortgage availability, FinTech lenders relax underwriting standards without raising interest rates or delinquency rates. Comparing lending supply channels, traditional banks respond to regulatory incentives to lend to damaged areas, whereas FinTech lenders exploit bank reliance on balance sheet lending to expand supply. FinTech lenders relax underwriting standards when under competitive pressure from traditional banks, but traditional banks do not use underwriting standards to compete with FinTech lenders.
{"title":"Do FinTech Mortgage Lenders Fill the Credit Gap? Evidence from Natural Disasters","authors":"Linda Allen, Y. Shan, Yaokan Shen","doi":"10.2139/ssrn.3625325","DOIUrl":"https://doi.org/10.2139/ssrn.3625325","url":null,"abstract":"After exogenous shocks caused by natural disasters, FinTech lenders satisfy the surge in demand for reconstruction mortgages more than traditional banks and non-FinTech shadow banks. Although both FinTech and traditional bank lenders increase mortgage availability, FinTech lenders relax underwriting standards without raising interest rates or delinquency rates. Comparing lending supply channels, traditional banks respond to regulatory incentives to lend to damaged areas, whereas FinTech lenders exploit bank reliance on balance sheet lending to expand supply. FinTech lenders relax underwriting standards when under competitive pressure from traditional banks, but traditional banks do not use underwriting standards to compete with FinTech lenders.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"18 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-06-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78134369","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Post-crisis reforms changed the location of safe asset production. I propose a pair of tests to identify who issues safe assets and which safe asset issuers opportunistically time issuance when the price of safe assets is high. The Federal Home Loan Bank (FHLB) system is a newly crucial safe asset producer. FHLB debt issuance is an important determinant of the price of safe assets, and FHLB debt issuance responds to day-to-day fluctuations in the demand for safe assets — measured via the convenience yield. FHLBs issue more after an unexpected increase in the convenience yield and an unexpectedly large FHLB issue decreases the convenience yield. The FHLBs' ability to produce safe assets depends on their implicit government backing, a potential source of concern for future policymakers.
{"title":"Safe Asset Migration","authors":"Chase P. Ross","doi":"10.2139/ssrn.3549991","DOIUrl":"https://doi.org/10.2139/ssrn.3549991","url":null,"abstract":"Post-crisis reforms changed the location of safe asset production. I propose a pair of tests to identify who issues safe assets and which safe asset issuers opportunistically time issuance when the price of safe assets is high. The Federal Home Loan Bank (FHLB) system is a newly crucial safe asset producer. FHLB debt issuance is an important determinant of the price of safe assets, and FHLB debt issuance responds to day-to-day fluctuations in the demand for safe assets — measured via the convenience yield. FHLBs issue more after an unexpected increase in the convenience yield and an unexpectedly large FHLB issue decreases the convenience yield. The FHLBs' ability to produce safe assets depends on their implicit government backing, a potential source of concern for future policymakers.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"63 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-05-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84823551","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using detailed Danish micro-data, we study how a credit-driven boom in consumer demand affects firm dynamics. We exploit the introduction of interest-only mortgages in 2003 to estab- lish a structural break in Danish households’ spending capacity. A difference-in-differences approach indicates that the reform sharply increases consumers’ expenditure. This demand shock generates revenues and profits for Danish firms and results in the creation of at least 2,500 additional jobs, between 2004 and 2010. These positions are concentrated in the non- tradable sector. Our results indicate that mortgage markets shape the size and composition of real economic activity during expansion phases.
{"title":"Real Effects of Relaxing Financial Constraints for Homeowners: Evidence from Danish Firms","authors":"Alessia De Stefani, Julia Moertel","doi":"10.2139/ssrn.3389943","DOIUrl":"https://doi.org/10.2139/ssrn.3389943","url":null,"abstract":"<br>Using detailed Danish micro-data, we study how a credit-driven boom in consumer demand affects firm dynamics. We exploit the introduction of interest-only mortgages in 2003 to estab- lish a structural break in Danish households’ spending capacity. A difference-in-differences approach indicates that the reform sharply increases consumers’ expenditure. This demand shock generates revenues and profits for Danish firms and results in the creation of at least 2,500 additional jobs, between 2004 and 2010. These positions are concentrated in the non- tradable sector. Our results indicate that mortgage markets shape the size and composition of real economic activity during expansion phases.<br>","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"208 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76257182","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study individual labor market decisions during the house price run-up of the early 2000s using the career paths of nearly 7 million workers. We find that individuals switch careers to become real estate agents (REAs) at higher rates in areas with stronger house price growth, despite little or no growth in average REA wages. We find that those drawn into real estate come from virtually all parts of the skill, wage, and education spectrums, and respond to both fundamental and non-fundamental house price growth. Examining wages, we find that those drawn into REA near the peak of the run-up experienced substantially lower wage paths than similar non-entrants through the end of our sample in 2017. These effects are particularly severe for entrants in areas with higher non-fundamental growth. Overall, we shed light on some important consequences of house price fluctuations, both fundamental and non-fundamental, on labor market outcomes.
{"title":"Dream Chasers: The Draw and the Downside of Following House Price Signals","authors":"Taylor A. Begley, Peter Haslag, Daniel Weagley","doi":"10.2139/ssrn.3577828","DOIUrl":"https://doi.org/10.2139/ssrn.3577828","url":null,"abstract":"We study individual labor market decisions during the house price run-up of the early 2000s using the career paths of nearly 7 million workers. We find that individuals switch careers to become real estate agents (REAs) at higher rates in areas with stronger house price growth, despite little or no growth in average REA wages. We find that those drawn into real estate come from virtually all parts of the skill, wage, and education spectrums, and respond to both fundamental and non-fundamental house price growth. Examining wages, we find that those drawn into REA near the peak of the run-up experienced substantially lower wage paths than similar non-entrants through the end of our sample in 2017. These effects are particularly severe for entrants in areas with higher non-fundamental growth. Overall, we shed light on some important consequences of house price fluctuations, both fundamental and non-fundamental, on labor market outcomes.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":"178 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-04-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76126032","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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