FINANCIAL CHARACTERISTICS OF SUCCESSFUL ASIAN REAL ESTATE DEVELOPMENT AND MANAGEMENT COMPANIES

Abstract

This study investigates the key financial characteristics of successful Asian-listed real estate development and management companies (REDMCs) over the period 2006 to 2015. 11 firm-specific financial characteristics are utilised as potential indicators of superior corporate performance. Additionally, the Sharpe index and Jensen’s alpha are employed as indicators of financial success. Univariate corporate and stock market performance analysis are performed on sample firms, categorised into individual countries. Generally, REDMCs in Singapore are detected to perform best in terms of stock market performance. In another analysis, significant differences in the means of corporate and stock market indicators resulting from Global Financial Crisis are found. This paper further hypothesises that the primary determinants of value in REDMCs are growth, profitability and financial leverage. Empirical results from the simultaneous equation modelling of financial performance using Ordinary Least Squares (OLS) regression reveal that successful REDMCs are generally of larger size and linked to greater sustainable growth as well as positive spread. They are often profitable and demonstrate higher earnings retention ratio. Although found to be capable of borrowing more debts, they are inclined towards adopting balanced debt ratio when sustaining actual assets growth rate to manage operating and financial risks. Lastly, OLS regressions against Sharpe index and Jensen’s alpha estimating relationships between corporate and stock market performances suggest that Asian REDMCs of generally large size, high market valuation and profitability are capable of producing superior stock market performance. Other relevant factors that may influence stock market success include sustainable growth rate, debt ratio and spread.