Corporate Real Estate Management And Firm Performance In China

Corporate real estate (CRE) plays an important role in a firm’s asset structure and cost structure, thus it may affect the firm’s performace significantly. It’s essential for the firms to understand the effect of corporate real estate management (CREM), so as to evaluate the efficiency of their CREM, and then optimize it. Therefore, studying the relationship between CREM and firm performance can help CRE play its strategic role fully, and maximize the stockholers value.By summarizing the existed theoretical and empirical literatures, we find that the domestic reaearch of relative field is still at the initial stage, while the relevant foreign studies can also be further improved. Therefore, combining with the the corporate real estate practice of Chinese firms, this paper studies the relationship between CREM and firm performance from the perspective of capital market, including the wealth effect of CRE restruction, the influencing factors of corporate real estate ratio(CRER), and the relationship between CRER and stock performance. We hople this paper can enrich the relative literatures, and also provide reference for Chinese firms’CREM practice.Firstly, this paper examines the wealth effect of CRE restruction by using the event study method. The empirical results show that the firms can obtain a significant positive abnormal return by acquiring CRE, while the cumulative abnormal return(CAR) they get is significantly affected by the bidder’s characters such as their size, industry, debt level, free cash flow and corporate goverance, the deal’s characters such as the ways of payment, the type of the target asset and the purpose of the deal and the market condition. The results also show that the voluntary and involuntary CRE divesture both will improve the target firms’stockholer wealth, while the wealth effect of the former is significantly higher than that of the latter. The CAR of the involuntary CRE divesture is mainly caused by their high debt level and the high compensetaion they get from the goverment, however, the high compensetaion isn’t resluted from their stated-owned background.Secondly, according to the purpose the firm holds CRE and the type of real estate, we divide CRE into four categories:the buildings for production and operation, the land for production and operation, the buildings for investment and the land for investment, then dicuss the role of the four kinds of CRE in Chinese frims, analyze and empirically test the internal and external factores influencing the four kinds of CRER. The results show that the distribution of the four kinds of CRE in Chinese firms differs greatly. Firm size, investment opportunity, corporate goverance and industry the firm in affect these four kinds of CRER significantly and similarly. However, the external factors that the housing price, rent and land price have different impacts on the four CRERs. One possible reason is that the four kinds of CRE are used differently, so their revenue models differ greatly, and while another possible reason is that the information transmissions between Chinese housing market, rent market and land market aren’t entirely effective.Finally, considering the effect of capital structure, this paper studies the impact of CRER on stock performance. The results show that there are bidirectional impacts between CRER and debt level, and these impacts differ across industries. The CRE ownership won’t improve the stock performance significantly, and even decrese it significantly in some industry, however, it can reduce the systematic risk of stock return.There is no significant difference between the effects of CRER on abnormal return for firms with different debt levels. However, CRER of lower debt firms can significantly decrease much more systematic risk than that of the high debt firms.