SHARE PRICE REACTION OF BANKS IN THE CONTEXT OF DISPOSAL OF NON PERFORMING REAL ESTATE LOAN PORTFOLIOS: EVIDENCE FROM GERMANY

In contrast to the US experience, most international (European) real estate investments trusts (REITs) are subject to prudential regulation. This paper investigates the effects of prudential regulation on capital structures and consequently, the REIT share values of major legal and market constraints (i.e. leverage limitations, market discount on net asset value (NAV), tax controls) that affect non-US REITs. Italian market data are used for an empirical analysis. Our hypothesis is that in a constrained environment, the effects on share price significantly depend on the adopted valuation perspective, i.e. if shares are valued by following a NAV or a financial approach. The logic for this hypothesis is that the two valuation methodologies perceive leverage and implied financial risk differently. In particular, we argue that NAV valuation techniques incentivise REITs to maximize leverage regardless of the financial theory which indicates a contrasting impact of debt on the market value of shares. Differences in financial risk perception could also partially explain market price discounts on NAVs.The empirical results seem to support these expectations. Almost all Italian REITs tend to increase debt ratios over time. NAV discounts are significantly related to leverage. The discount effect is largely attributable to NAV increases that result from rising debt levels. On the contrary, share market prices tend to be independent from leverage. The latter result may indicate that the classic capital theory applies and current debt ratios do not imply bankruptcy risk. The results have significant policy implications in terms of an optimal regulatory design.

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Share Price Reaction to Sales Contract Announcement

The Korean Data Analysis Society ◽

10.37727/jkdas.2021.23.2.697 ◽

2021 ◽

Vol 23 (2) ◽

pp. 697-710

Author(s):

Sungjin Son ◽

Soonho Kim

Keyword(s):

Share Price ◽

Price Reaction

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Debtholder Monitoring Incentives and Bank Earnings Opacity

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109020000241 ◽

2020 ◽

pp. 1-38

Author(s):

Piotr Danisewicz ◽

Danny McGowan ◽

Enrico Onali ◽

Klaus Schaeck

Keyword(s):

Real Estate ◽

Information Disclosure ◽

Quality Of Information ◽

Legislative Changes ◽

Priority Structure ◽

Real Estate Loan

Abstract We exploit exogenous legislative changes that alter the priority structure of different classes of debt to study how debtholder monitoring incentives affect bank earnings opacity. We present novel evidence that exposing nondepositors to greater losses in bankruptcy reduces earnings opacity, especially for banks with larger shares of nondeposit funding, listed banks, and independent banks. The reduction in earnings opacity is driven by a lower propensity to overstate earnings and is more pronounced among larger banks and in banks with more real estate loan exposure. Our findings highlight the importance of creditors’ monitoring incentives in improving the quality of information disclosure.

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