“The effect of leverage on the performance of real estate companies: A Pan-European post-crisis perspective of EPRA/NAREIT index”
A new paper has been published by Giacomo Morri & Karoline Jostov.
The paper investigates the impact of leverage on the total shareholder return of European publicly traded real estate vehicles during, before and after the Global Financial Crisis. We found that during the Crisis Period, leverage levels are negatively associated with performance and the same relationship also holds throughout the Whole Period. This implies that for real estate securities the cost of financial distress is larger than the potential gain from tax shields. Also the effect of size, book-to-market and local market risk premium are found to be relevant, which is consistent with the previous literature.
Reference: Journal of European Real Estate Research, 2018, Vol. 11 Issue: 3, pp.284-318, https://doi.org/10.1108/JERER-01-2018-0004