THE ROLE OF CORPORATE REAL ESTATE IN DETERMINING THE EFFECTS OF ECONOMIC & SOCIO-POLITICAL SHOCKS

Abstract

The attention on real estate ownership has shifted beyond the traditional belief of being a secondary asset, to one known as a strategic asset. For non-real estate firms, the presence of Corporate Real Estate (CRE) could provide firms the option to strategically utilise real estate to meet certain business and financial objectives, or even use CRE as a means to navigate macroeconomic shocks. The conception of the Economic Policy Uncertainty (EPU) Index as a measure of such shocks has resulted in increasing academic interest in this relatively new and unexplored measure, with current literature finding that companies do indeed hold back or limit investments during times of uncertainty. Therefore, there is a clear opportunity to examine the relationship between CRE and EPU, and how this relationship may aid companies in their decision-making, forming the impetus for this research.

The objectives of this paper are as such: I) to analyse the correlation between CRE and financial performance, from both an operational and a stock market perspective. II) to examine the impact of uncertainty on financial performance; and III) to determine whether CRE affects the impact of uncertainty on financial performance.

Several multiple linear regressions are conducted in this paper, in order to analyse corporate-level financial performance, using Return on Assets and Market Price as indicators, with regard to macroeconomic indicators such as GDP growth, Inflation, and EPU. The results reveal a highly significant impact by both CRE and EPU on financial performance, as well as a highly significant interaction between the two variables. This novel estimate affirms that there is indeed a link between CRE and uncertainty. This paper also finds a link between CRE ownership and company sector, and explores the relationship between maturity and ownership concentration of companies, with reference to CRE held, thus providing a basis to show the different decision-making processes of companies at different stages of their lifecycle, and in different sectors.