REIT capital budgeting and equity marginal q

Brent W. Ambrose, Dong Wook Lee

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Equity marginal q is the change in the market value of a company's equity in response to a one-unit unexpected change in its asset base. Hence, it is a profitability index that evaluates a firm's capital budgeting decisions at the margin. We estimate the equity marginal q for real estate-managing public corporations, namely, real estate investment trusts (REITs), in an attempt to understand how the various costs and benefits of being a public corporation play a role in managing this important asset class. Using the universe of equity REITs for the period from 1993 to 2005, we find that REITs with greater idiosyncratic volatility, higher stock turnover and smaller bid-ask spread have a higher equity marginal q. In addition, both the holdings of institutional investors and their investment horizons are respectively positively related to equity marginal q. With these firm characteristics taken into account, firm size is found to be negatively related to equity marginal q. Our findings are economically important as well, because the equity marginal q ratio alone accounts for approximately one-third of the total REIT shareholder wealth change during the study period.

Original languageEnglish (US)
Pages (from-to)483-514
Number of pages32
JournalReal Estate Economics
Volume37
Issue number3
DOIs
StatePublished - Sep 1 2009

Fingerprint

Equity
Real estate investment trusts
Capital budgeting
Assets
Market value
Idiosyncratic volatility
Firm characteristics
Margin
Shareholder wealth
Bid/ask spread
Costs and benefits
Institutional investors
Real estate
Turnover
Investment horizon
Profitability
Firm size

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Ambrose, Brent W. ; Lee, Dong Wook. / REIT capital budgeting and equity marginal q. In: Real Estate Economics. 2009 ; Vol. 37, No. 3. pp. 483-514.
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REIT capital budgeting and equity marginal q. / Ambrose, Brent W.; Lee, Dong Wook.

In: Real Estate Economics, Vol. 37, No. 3, 01.09.2009, p. 483-514.

Research output: Contribution to journalArticle

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