Browsing by Author "Ibrahim, Islam"
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- Articles on the impact of diversification on real estate firms
School of Engineering | Doctoral dissertation (article-based)(2025) Ibrahim, IslamReal estate portfolio diversification is a common investment strategy among real estate firms worldwide. When implemented across markets with imperfectly correlated performance, diversification can reduce a firm's cash-flow volatility, positively impacting its capital costs and overall value. However, diversification can also increase agency and information costs, exacerbating issues such as overinvestment and inefficient capital allocation. Therefore, the net effect of diversification on a real estate firm reflects a balance between these potential benefits and costs. Accordingly, this dissertation quantitatively investigates the net effect of different dimensions of diversification on a real estate firm's capital cost and value. The dissertation empirically highlights, with robust evidence, that different dimensions of diversification can affect a firm's debt costs differently. Specifically, it finds that property-type diversification is associated with a decrease in public debt costs. In contrast, domestic diversification is associated with an increase in public debt costs. In the same context, this dissertation reveals that credit rating agencies and public lenders may assess the impact of diversification on credit risk differently. The present research also examines the impact of two levels of geographical diversification—domestic and international—on real estate firm value. International diversification may be more effective in delivering the benefits of geographical diversification due to the lower correlation between international markets compared to domestic markets, hence presenting a different effect on firm value. However, the findings illustrate that the potential benefits of geographical diversification, whether domestic or international, are often outweighed by negative implications stemming from agency and information problems, resulting in a reduction in firm value. Additionally, this dissertation identifies operating efficiency and risk premiums as channels through which geographical diversification can negatively impact firm value. Finally, the findings of this dissertation reveal time variation in the net effects of diversification, showing that the balance between the benefits and costs of diversification varies with market conditions. During periods of high market volatility, the benefits of diversification appreciate, counterbalancing the associated costs. At the same time, it is demonstrated that market volatility has adverse effects on real estate firms; however, diversified real estate firms experience a mitigated effect of market volatility. Consequently, the findings suggest that diversification can moderate the adverse effects of market volatility. - Distance to school effects on housing prices
Insinööritieteiden korkeakoulu | Bachelor's thesis(2023-04-17) Lindén, Wilma - Diversification and Cost of Public Debt for REITs: Evidence from the US
A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä(2024) Ibrahim, Islam; Falkenbach, HeidiThis paper investigates the impact of property type and geographical diversification on the cost of public debt for U.S. real estate investment trusts (REITs). We measure diversification using the negative of the Herfindahl–Hirschman Index (HHI) and represent the debt cost by the yield spread of the debt issue. We find that property-type diversification has a cost-decreasing effect on public debt. For example, our estimations illustrate that a one standard deviation increase in property type diversification decreases the yield spread by 10.97 basis points on average. In contrast, geographical diversification has a cost-increasing effect. For example, we estimate that a one standard deviation increase in regional diversification increases the yield spread by 9.95 basis points on average. Moreover, we find that controlling for the S&P’s credit rating of the debt issue does not entirely absorb the impact of diversification on the yield spread, suggesting a difference in the credit-risk assessment of diversification’s effects between public lenders and credit rating agencies. - European real estate companies' reaction to Brexit: An event study
Insinööritieteiden korkeakoulu | Master's thesis(2019-10-21) Ibrahim, IslamBrexit is unequivocally expected to have economic repercussions and send ripples across Europe. The implications are expected to reflect on the performance of the various markets through transmission channels. Those transmission channels could be concluded in the fundamental macroeconomic indicators. The real estate investment is a substantial prominent market that is expected to be affected by the implications of Brexit and sensitively react to the possible transmission channels. The research investigates the European real estate companies’ reaction towards those transmission channels and their implications. It is hypothesized that companies with higher exposure to Brexit’s effects, and accordingly, channels of transmission, should exhibit a more pronounced reaction. The empirical examination employs an event study framework augmented by multivariate regression analysis, where significant Abnormal Returns (ARs) and Cumulative Abnormal Returns (CARS) were used as leading indicators for real estate market reaction. The exposure is proxied by the magnitude of the company’s direct investment in the markets which are prone to the implications. Brexit was proxied by the Referendum event that took place on 23 of June 2016. Fifty-two listed real estate companies, from 9 different countries were sampled. The results suggest that exposure to the forecasted negative repercussions has a significant adverse impact on the real estate companies’ returns, while exposure to possible positive consequence has a significant positive and negative reaction. The findings, on the one hand, brace the Efficient Market Hypothesis. It displays the market’s ability to swiftly price-in expected negative and positive repercussions. On the other hand, it vividly demonstrates the impact of Brexit on the real estate market. - International diversification and European firm value : the role of operating efficiency
A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä(2023-11-24) Ibrahim, Islam; Falkenbach, HeidiPurpose: This study aims to investigate the impact of international diversification on the value and operating efficiency of European real estate firms. Design/methodology/approach: The study is conducted using a panel fixed effects regression model to estimate the relationship of international diversification with firm value and operating efficiency. International diversification is mainly measured via the negative of the Herfindahl–Hirschman Index (HHI) using property-level data. Firm value and operating efficiency are proxied by financial ratios observed annually from 2002 to 2021 at the firm level. Findings: The results demonstrate that international diversification has a negative effect on firm value. Additionally, it lowers operating efficiency by weakening a firm's ability to generate operating earnings from its assets. By examining whether the reduction in operating efficiency is due to the rental income channel or the capital gains channel, the authors find strong statistical evidence that international diversification negatively impacts capital gains. International diversification is negatively associated with net gains from property valuations (unrealized capital gains) and net profits from property disposals (realized capital gains). Research limitations/implications: The empirical analysis is limited to Europe. Originality/value: This paper extends the geographical diversification literature. While existing literature focuses on domestic diversification within the United States, this paper explores the effects of international diversification on European real estate firms. To the extent of the authors' knowledge, this is the first paper to examine the impact of geographical diversification on capital gains. - Predictability of real estate risk premium
Insinööritieteiden korkeakoulu | Master's thesis(2021-08-23) Pernu, Joonas - Pricing of real estate investment trust bonds
Insinööritieteiden korkeakoulu | Master's thesis(2020-08-17) Koskela, KiaThis study aims to examine the variables affecting corporate bond pricing by focusing on the real estate industry. The study analyses how much the variables are explaining the real estate investment trust (REIT) corporate bond pricing in terms of yield spreads. The REIT bond yield spread is defined as a difference between the quarterly observed yield in the secondary market for the specific bond and a comparable Treasury bond yield between 2015 and 2019. The study focuses on reviewing the different bond pricing methods and the relevant specific features that are commonly used to examine the bond yield spreads. The differences between the models studying yield spreads are compared and the challenges presented. The set of selected variables is derived from the bond pricing theory review. As the study aims to particularly examine the REIT corporate bond pricing, the characteristics of REIT market, REIT financing and REIT bond issuances are carefully explored. The data used in the empirical analysis was obtained and combined from three different databases. Ordinary least squares (OLS) regression framework was used to examine the observed REIT bond yield spreads. To be able to tell which factors are explaining the REIT bond prices, the results from four different multiple regression models were analysed. Also, the fixed effects models for the real estate sector and credit ratings were constructed. Empirical analysis for the REIT bond pricing provided insight that macroeconomic, financial market, REIT level and bond level variables affect to yield spreads. The explanatory degrees of the variables vary slightly between the four multiple regression models. Also, it was observed that some part of the yield spread remains unexplained. The constructed fixed effect model for real estate sector estimated the sub-industry effects by using diversified REIT as a base group. All sectors, except specialty REITs, were found to have a negative effect to bond yield spreads. Higher leverage ratios had a positive effect on yield spreads. Also, the REIT bond issue-specific variables were found to affect the bond pricing. Both, the dummy variable for bond credit rating, indicating if the bond belongs to high-yield class, and the lower credit rating itself were found to have a positive effect to yield spreads.