TY - JOUR
T1 - Product Market Competition and Corporate Real Estate Investment under Demand Uncertainty
AU - Ambrose, Brent W.
AU - Diop, Moussa
AU - Yoshida, Jiro
N1 - Publisher Copyright:
© 2016 American Real Estate and Urban Economics Association
PY - 2017/9/1
Y1 - 2017/9/1
N2 - This article theoretically and empirically analyzes the interactions among corporate real estate investment, product market competition and firm risk. In our model, firms own strategic real estate or lease generic real estate. Our model predicts that strategic real estate ownership is positively correlated with industry concentration and negatively related to demand uncertainty. Also, firm risk is higher for firms with more strategic real estate operating in a more concentrated market. This prediction arises because smaller investments induce greater market competition, which effectively eliminates the right tail of the firm's profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.
AB - This article theoretically and empirically analyzes the interactions among corporate real estate investment, product market competition and firm risk. In our model, firms own strategic real estate or lease generic real estate. Our model predicts that strategic real estate ownership is positively correlated with industry concentration and negatively related to demand uncertainty. Also, firm risk is higher for firms with more strategic real estate operating in a more concentrated market. This prediction arises because smaller investments induce greater market competition, which effectively eliminates the right tail of the firm's profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.
UR - http://www.scopus.com/inward/record.url?scp=85026731486&partnerID=8YFLogxK
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U2 - 10.1111/1540-6229.12150
DO - 10.1111/1540-6229.12150
M3 - Article
AN - SCOPUS:85026731486
SN - 1080-8620
VL - 45
SP - 521
EP - 590
JO - Real Estate Economics
JF - Real Estate Economics
IS - 3
ER -