Size effects and economies of scale in European real estate companies

Brent W. Ambrose, Franz Fuerst, Nick Mansley, Zilong Wang

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This study investigates scale economies in European real estate companies. We examine the effects of size on revenue, expense, profitability ratios and capital costs using panel data regression. We find that larger real estate companies in Europe are able to generate higher revenue per unit of company size, incur lower costs and produce higher returns. Net Operating Income ratios and return ratios increase while Selling, General and Administrative expense ratios decrease with the size of a company. However, we do not find evidence that larger companies have lower cost of debt or lower weighted average cost of capital. From our analysis, it is evident that particularly small firms can reap substantial economies of scale as they grow. However, the benefits of further growth tend to be much more modest for larger companies. Given REITs are on average larger than comparable non-REITs this may explain why REITs have lower economies of scale in expenses and revenues than Non-REIT real estate companies.

Original languageEnglish (US)
Article number100470
JournalGlobal Finance Journal
Volume42
DOIs
StatePublished - Nov 2019

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Real estate
Economies of scale
Real estate investment trusts
Revenue
Expenses
Large companies
Weighted average cost of capital
Income
Costs
Panel data
Cost of debt
Capital cost
Company size
Small firms
Scale economies
Profitability

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

Ambrose, Brent W. ; Fuerst, Franz ; Mansley, Nick ; Wang, Zilong. / Size effects and economies of scale in European real estate companies. In: Global Finance Journal. 2019 ; Vol. 42.
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Size effects and economies of scale in European real estate companies. / Ambrose, Brent W.; Fuerst, Franz; Mansley, Nick; Wang, Zilong.

In: Global Finance Journal, Vol. 42, 100470, 11.2019.

Research output: Contribution to journalArticle

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