An agency review of real estate development actor network and process in Finland; a case of new office construction.

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Insinööritieteiden korkeakoulu | Master's thesis
Real Estate Investment and Finance
Degree programme
Master’s Programme in Real Estate Economics
Real estate has contributed immensely to the economies of the world and in some cases being the single biggest employer and tax contributor. Due to population growth in the world at large, there is the continuous need for real estate development to cater for the real estate needs of society. Real estate development brings together a host of actors with varying goals and interests and risks levels. This results in an agency relationship with the potential for breeding agency problems in real estate development. The study focuses on investigating the relationship between two of actors involved in real estate development, with the aim of identifying agency problems in real estate development, and the effects of the presence or otherwise of agency problems of goal conflict and information asymmetry in real estate development in Finland. This in addition involves identifying the risks borne by each of the actors to know how well the interests of both parties are aligned. This is done with the aid of mixed research method approach, wherein qualitative data is used to identify the types of contracts, information asymmetry, goal conflicts and the implications of the presence of the agency problems or otherwise. The literature review part is used to establish the complete actor network, agency relationship and the problems thereof. This is supplemented by an expert thematic interview to make the work evidence based by empirical means with views from the field. The questionnaire developed to collect the quantitative data embedded is also used to complement the qualitative data collected in order to improve the reliability and the validity of the conclusions. From both the expert thematic interviews and the questionnaire, the outcome of the research is one that finds the use of the propositions of the agency theory in real estate development of offices. Hence, information asymmetry is not present in the real estate development market of Finland. Evidence was also found that, the profitability interests of both actors at a general level are well aligned to some extent and the risks are also shared to some extent to prevent agency opportunism and self-interestedness. However, an in-depth analysis revealed that, the profitability goals are not aligned. In essence, agency opportunism is unlikely to occur with regards to information asymmetry but may occur due to varying interests. The investors must also examine the activities of the expert consultants on site in order to also have an optimal contract structure to align their interests and share risks as well.
Viitanen, Kauko
Thesis advisor
Ristimäki, Miro
real estate development, agency theory, moral hazard, information asymmetry, goal conflict, risk sharing, investors, constructors, contract
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