Scandinavian Working Papers in Economics
Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance
No 19/5: The impact of underpricing of the default risk on investment: Evidence from Real Estate Investment Trusts (REITs)
Linh D. Nguyen () and Bertram Steininger ()
Additional contact information
Linh D. Nguyen: RWTH Aachen University, Postal: Department of Finance, Templergraden 64, 52056 Aachen, Germany, , ,
Bertram Steininger: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Division of Banking and Finance, Royal Institute of Technology, Teknikringen 10B, 100 44 Stockholm, Sweden, Sweden
Abstract: This study examines the impact of underpriced default risk on investment in the real estate investment trust (REIT) sector, where firms’ investment is highly sensitive to changes in credit market conditions. The findings reveal that REITs exploiting underpriced default risk have a higher level of investment than their peers because the former can access low-cost capital. Moreover, exploiting the underpriced default risk is specific to not only REITs but also to the whole real estate investment sector. In contrast, underpriced default risk has an insignificant impact on investment of non-real estate firms because non-recourse loans are unpopular in these firms.
Keywords: default risk; investment; real estate investment trusts (REITs); underpricing of the default risk
42 pages, October 21, 2019
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