Bertram I. Steininger

The Rat Race of Capital Structure Research for REITs and REOCs: Two Spotlights on Leverage

This paper presents a dynamic multi-equation model based on a balance sheet identity, where technical aspects of capital structure are highlighted through separately observing debt and equity and their relationship to investment. Additionally, leverage dynamics are interpreted in their role for liquidity management. Interactions of leverage with lines of credit (LOC) and cash are considered in the light of financial flexibility. The major findings obtained by observing US REITs and REOCs from 1995 to 2010 are as follows. In accordance with the existing literature, cash and LOC reveal a substitute relationship. However, the calculus of financial flexibility and our findings suggest that leverage positively drives cash, which is consistent with Gamba and Triantis (2008), and also with the accepted perspective of debt minus cash being net debt (Spotlight A). Consequently, the very robust results indicate that leverage eliminates a significant amount of information. Further mechanical relationships, especially for market leverage, are suggested (Spotlight B).

Immobilienpreiseffekte durch Hochwassergefahren

Hochwassergefahren haben, sofern sie wahrgenommen werden, einen negativen Einfluss auf Immobilienpreise und tragen damit signifikant zur Wohlfahrtsminderung bei. Interdisziplinäre Ansätze aus dem Bauingenieurwesen und der Immobilienökonomie ermöglichen die quantitative Erfassung und Berücksichtigung dieser sekundären Schäden innerhalb des Hochwasserrisikomanagements. Die Auswirkungen von Hochwassergefahren auf Immobilienpreise werden am Untersuchungsgebiet Sachsen und den Hochwasserereignissen 2002 und 2013 aufgezeigt.

Conventional or Reverse Magnitude Effect for Negative Outcomes: A Matter of Framing

Previous studies argue that some discounting anomalies are not as strong as it was widely assumed previously in choice tasks with disclosed effective interest rates. In the following paper, we show that size effects are still persistent in experimental tasks with disclosed effective interest rates, if the underlying outcomes are positive. Furthermore, we discover that discount rates are increasing with the absolute value of outcome size for negative outcomes. We refer to this new discounting anomaly as a reversed size effect and explain both of these size-related discounting anomalies theoretically with the help of the added compensation approach. We also discuss why the added compensation approach predicts that size effects are less significant for absolutely larger outcomes, which we confirm in our experiment. Subsequently, we analyze the empirical implications of our experiments for the interest rates in internet credit markets using an online credit broker in Germany as an example.

Willingness or Market Power: What Induces Tenants to Pay for Energy-Efficient Housing?

In this study, we analyze whether additional payments for energy efficiency are induced by either tenants’ willingness to pay, the market power of landlords, or both. With a German housing dataset from 2011 to 2016, we identify price discrimination for the energy performance certificate using hedonic regressions in a single and double sort setting. Results indicate that a high willingness to pay -– indicated by purchasing power and environmental awareness -– leads to price discrimination effects of 7-8%. These potential extra profits can stimulate investments in energy-based refurbishments by landlords. However, additional market power of landlords –- indicated by housing market conditions –- does not amplify these discrimination effects and is therefore not exploited against tenants.

The REIT Debt Puzzle

Although REITs do not have any tax advantage of debt, their leverage ratio is twice as high as that of non-REITs. By scanning capital structure theories and previous studies, then comparing results of the REIT sample with that of the comparison sample, we find reasons encouraging REITs use of debt financing. First, regarding the impact of capital structure determinants on REIT and non-REIT leverage, our analysis suggests that tangibility is the most influencing factor that contributes 17 percentage points of total difference between REITs’ leverage and non-REITs’ leverage. This result indicates that a high availability of desirable collateral increases the REITs’ preference for debt financing. The most second influencing determinant is operating risk which implies that REITs with more volatile cash flows tend to utilize debt financing to avoid the potential problems of new equity, e.g. misvaluation or the adverse reaction of investors to equity issue announcements. In contrast, firm size is the most influencing factor that reduces the magnitude of the total difference. The reason is that firm size has a positive impact on non-REITs’ leverage, but it has an insignificant impact on the leverage ratio of REITs.Second, we find evidence that REITs and non-REITs pursue different goal functions. Specifically, REITs pursue an optimal deviation from the target leverage ratio to maximize the risk-adjusted performance, while non-REITs follow an optimal deviation to maximize the firm value. Our investigation indicates that REITs can maximize their risk-adjusted performance if they maintain their deviation at the level of 40.6%, which corresponds to the leverage of 62.5%. Similarly, the firm value of non-REITs can be maximized if their deviation is 0.9% or their leverage is 24.5%.Finally, our findings reveal that the market response to a debt issue announcement is more positive than it is to an equity issue announcement. For example, on average, the cumulative abnormal return in the event window of 11 days surrounding a debt issue announcement date is 1.9 percentage points higher than that surrounding an equity issue announcement date. This result implies that the leverage ratio of REITs is high because managers desire to avoid the adverse reaction of investors to equity issue announcements.

A Reversed Magnitude Effect for Negative Payoffs: Theory and Empirical Evidence from a P2P Lending Market

Previous studies argue that some discounting anomalies are not as strong as it was widely assumed previously in choice tasks with disclosed effective interest rates. In the following paper, we show that size effects are still persistent in experimental tasks with disclosed effective interest rates, if the underlying outcomes are positive. Furthermore, we discover that discount rates are increasing with the absolute value of outcome size for negative outcomes. We refer to this new discounting anomaly as a reversed size effect and explain both of these size-related discounting anomalies theoretically with the help of the added compensation approach. We also discuss why the added compensation approach predicts that size effects are less significant for absolutely larger outcomes, which we confirm in our experiment. Subsequently, we analyze the empirical implications of our experiments for the interest rates in internet credit markets using an online credit broker in Germany as an example.

A Reversed Magnitude Effect for Negative Payoffs: Theory and Empirical Evidence

Previous studies argue that some discounting anomalies are not as strong as it was widely assumed previously in choice tasks with disclosed effective interest rates. In the following paper, we show that size effects are still persistent in experimental tasks with disclosed effective interest rates, if the underlying outcomes are positive. Furthermore, we discover that discount rates are increasing with the absolute value of outcome size for negative outcomes. We refer to this new discounting anomaly as a reversed size effect and explain both of these size-related discounting anomalies theoretically with the help of the added compensation approach. We also discuss why the added compensation approach predicts that size effects are less significant for absolutely larger outcomes, which we confirm in our experiment. Subsequently, we analyze the empirical implications of our experiments for the interest rates in internet credit markets using an online credit broker in Germany as an example.

Finanzinnovation: Crowdfunding für die Immobilienwirtschaft (Financial Innovation: Crowdfunding for the Real Estate Market)

German Abstract: Aktuelle Entwicklungen im Rahmen der digitalen Revolution und auf dem klassischen Kapitalmarkt haben die Finanzierungsquellen fur die Immobilienwirtschaft erweitert. Dieser Artikel analysiert in einem theoretischen Teil die Chancen und Risiken, die mit der Finanzinnovation „Crowdfunding“ im Bereich der Immobilieninvestition verbunden sind. Das Volumen und damit auch die Bedeutung dieses Finanzierungssegments stieg dabei in den letzten Jahren uberproportional. Im empirischen Teil wird ein Datensatz deutscher Immobilienplattformen verwendet, um den Effekt der wichtigsten Einflussfaktoren fur den geforderten Zinssatz und fur den Finanzierungserfolg zu quantifizieren. Erkennbar ist, dass vor allem die Wahl der Plattform masgeblich fur die Hohe des Zinssatzes ist. Weiterhin wird deutlich, dass der Finanzierungserfolg neben der Plattform auch von der Gestaltung der Projektbeschreibungen abhangig ist. Der Erfolg bisheriger Plattformen, der sich in einer hohen Nachfrage und durch teilweise vorteilhafterer Konditionen im Vergleich zu einer traditionellen Finanzierung ergibt, lasst den Schluss zu, dass „Crowdfunding“ eine Alternative oder Erganzung fur Nachrangdarlehen in bestimmten Bereichen der Immobilienwirtschaft darstellt. English Abstract: Current developments of the digital revolution as well as on the capital market have brought new financing opportunities to the real estate market. In the theoretical part of this paper, we analyze the opportunities and risks that accompany innovative real estate crowdfunding. The volume and relevance of this financing opportunity have increased disproportionately in the last few years. In the empirical part, we quantify the effect of the determinants for the interest rate and for the success of funding by using a German data set. It is discernible that the choice of crowdfunding platform is decisive for the level of the interest rate. Moreover, the success of funding is likewise dependent on the choice of platform but also on how project descriptions are formulated. The high demand for this type of loan type reflects the current success of crowdfunding platforms, resulting from their development potential as well as their – to some extent – more advantageous conditions compared to those of traditional funding sources. Our findings conclude that crowdfunding is an alternative – or at least a supplement – to more traditional subordinated loan in certain segments of the real estate market.

The Impact of Misvaluation in the REIT Sector

Misvaluation is defined as the act of misspecifying the current value of an asset or a company. Graham & Harvey (2001) report that misvaluation is one of the most important factors impacting on the decision of when and how to issue common stocks.Within the REIT, investors as outsiders have difficulty to accurately determine the market value of REITs because information asymmetries in the real estate market are high (Garmaise & Moskowitz, 2004). Moreover, REITs rely mainly on external financings for their activities and always issue securities to cover a shortage of internal sources of capital (Boudry et al., 2010). Hence, misvaluation is more likely to be a significant problem for REITs. However, up to now, the effect of misvaluation on the REIT capital structure decisions has not been analyzed.By using the decomposing market-to-book model of Rhodes-Kropf et al. (2005) and the residual income model of Ohlson (1995) to estimate misvaluation, weconduct a comprehensive investigation of misvaluations impact in the REIT sector. First, we examine the impact of misvaluation on REITs’ financing decisions because the capital structure of REITs is entirely different from non-REIT firms due to their tax-exempt status. Second, we analyze how misvaluation can influence cash holdings and the use of bank credit lines. These things could be severe problems in the REIT sector because the mandatory payout is high and the ratio of cash to total assets of REITs is 12 times lower than that of non-REIT firms (Damodaran, 2005). Altogether our paper makes several contributions to the literature about the effect of misvaluation on the financing decisions and liquidity management policies of REITs.The main results can be summarized as follows: First, REITs experiencing a high appreciation of stock price would have a greater propensity to increase the likelihood of an equity issue, whose purpose could be to exploit the low cost of equity capital relative to other forms of capital. Second, REITs are more likely to increase debt issuances and have greater credit line availability when their stock is overvalued. The reason for these results is that overvalued REITs generally have easier access to debt. Third, regarding the liquidity management policies, we find empirical evidence supporting that overvalued REITs use more cash than bank lines of credit for liquidity management because they can accumulate larger amounts of cash relative to other firms.

Are Risk Preferences Time-Dependent? Looking Ahead, a Group Has a Stronger Effect Than the Average of Its Individual Members

We investigate whether individual and group risk preferences are dependent on reward delay. To do so, we run a lottery-choice experiment, where payments are made either directly or in 3, 9, or 18 months after the experiment. We find that risk preference is time-dependent for both individuals and groups. In the present, groups make more risk-averse decisions than individuals do. As soon as decisions materialize in the future, this relation reverses, with groups becoming less risk-averse in their decisions and reaching almost risk neutrality at 18 months. Both, individuals and groups, do not significantly differ in their risk preferences between the different delays. We present a parameterization of the probability time trade-off model extended by the probability of prospect survival and show that our results are consistent with the affect-based reasoning explanation.