Capital Markets Review Vol. 32, No. 2, pp. xx-xx (2024)
Corporate Diversification of Real Estate Investment Trusts (REITs) In A Post-Pandemic World: Lessons from Malaysia and Singapore
Ling-Foon Chan1*, Calvin W.H. Cheong1 & A.N. Bany-Ariffin2
1Department of Economics and Finance, Sunway University, Malaysia
2Department of Accounting and Finance, School of Business and Economics, Universiti Putra Malaysia, Malaysia
Abstract: Research Question: This study explores the impact of corporate diversification on the financial performance of Real Estate Investment Trusts (REITs) in Malaysia (M-REITs) and Singapore (S-REITs), with a focus on the moderating influence of growth opportunities. Motivation: The motivation behind this research stems from the observed divergence in diversification strategies among REITs in different countries. While diversified REITs are prevalent in Malaysia, specialized REITs dominate the United States and Japan. This study seeks to shed light on the implications of corporate diversification for REITs in the Southeast Asian context and highlight the role of growth opportunities in shaping their financial performance. Idea: The core idea of this research is to examine the relationship between corporate diversification and financial performance in the context of M-REITs and S-REITs. We employ the Entropy Index to measure corporate diversification and the Dynamic System Generalized Method of Moments (DSGMM) to analyze data from 2009 to 2020, encompassing the pre and during COVID-19 pandemic period. Data: We collect and analyze data from leading REITs in Malaysia and Singapore, representing the ASEAN region’s REIT market. Notably, we exclude Thailand, Vietnam, and Indonesia due to their nascent REIT markets. The dataset covers critical aspects of corporate diversification and uses the PI as a performance measure. Method/Tools: Our empirical framework encompasses the DSGMM approach to evaluate the relationship between corporate diversification and financial performance. We also explore the moderating effect of growth opportunities on this relationship. Findings: Our findings reveal that corporate diversification significantly affects the financial performance of REITs, with a focus on PI as the performance measure. However, when considering Tobin’s-Q ratio, the results exhibit variations. While All-REITs and M-REITs demonstrate significance levels ranging from 1% to 10%, S-REITs show different results. Additionally, growth opportunities significantly moderate the impact of corporate diversification on financial performance, as evidenced by All-REITs and S-REITs. Although M-REITs lack sufficient data for strong significance, they also indicate the potential influence of growth opportunities. Contributions: This paper contributes to the literature by offering insights into the dynamics of corporate diversification, growth opportunities, and financial performance within the M-REITs and S-REITs. The findings underscore the importance of considering these factors when assessing the performance of REITs, particularly in diverse markets like the ASEAN region.
Capital Markets Review Vol. 32, No. 2, pp. xx-xx (2024)
The Determinants of Malaysian Real Estate Investment Trusts’ Systematic Risks
Phaik Nie Chin1*, Abdulsalam Abuhamra1, & Zheng Xian Lee1
1Universiti Sains Malaysia, Graduate School of Business, Minden, 11800 Gelugor, Penang, Malaysia
Abstract: Research Question: The paper investigates the influence of firm performance, market performance, inflation, and economic growth on systematic risk within Malaysian Real Estate Investment Trusts (M-REITs). Motivation: The study aims to understand how firm performance, market performance, inflation, and economic growth collectively impact systematic risk within M-REITs. The novelty of this study lies in its focus on the Malaysian context and the specific examination of M-REITs, contributing to a limited body of research on systematic risk in emerging markets. Understanding these dynamics is crucial for investors, stakeholders, and policymakers to make informed decisions and enhance risk management strategies in the M-REIT sector. Idea: This paper analysed the impact of firm performance, market performance, inflation, and economic growth on systematic risk within M-REITs using panel data analysis. The central hypothesis is that factors such as Return on Asset (ROA), stock market indices, inflation, and economic growth significantly influence the systematic risk of M-REITs, with ROA playing a crucial role in shaping the overall risk profile of M-REITs. Data: This paper examined financial data from 17 REITs listed on the Bursa Malaysia exchange from 2017 Q1 to 2021 Q4. using quarterly reports from each company and macroeconomic data from the Department of Statistics Malaysia and S&P Global 500 for the same period. Method/Tools: The study utilised a panel data analysis approach, specifically Pooled Ordinary Least Square (OLS) regression. Findings: The key findings of the study reveal a significant and positive relationship between firm performance, stock market indices, inflation, and systematic risk within M-REITs. This aligns with the principles of the Capital Asset Pricing Model (CAPM). Contributions: This paper contributes to the literature by demonstrating the significant influence of firm performance, market performance, inflation, and economic growth on systematic risk within M-REITs, providing valuable insights for risk management strategies and decision-making in the M-REIT market.
Capital Markets Review Vol. 32, No. 2, pp. xx-xx (2024)
Is there a risk premium in ESG investing in India?
Dr Sweta Aggarwal1, Dr Smita Dayal2, Dr Nidhi Malhotra3
1Adjunct Faculty, ICFAI Business School, Gurgaon
2Assistant Professor, Lal Bahadur Shastri Institute of Management, New Delhi
3Associate Professor, Lal Bahadur Shastri Institute of Management, New Delhi
Abstract: Research Question: To check whether the ESG scores of Indian companies impact their share prices and risk-adjusted returns. Motivation: Increased awareness about sustainability has sensitised both institutional and individual investors regarding ESG activities of their portfolio firms. They identify these activities as sources of both opportunity and risk There are conflicting perspectives on ESG and stock returns and a pressing need to clarify the ESG disclosure implications on investment performance and risk, more so due to the growing monitoring by exchanges, regulators, and institutional investors. Idea: The study aims to check if the nonfinancial information in ESG scores can be a source of risk premium (or alpha) for investors, especially after accounting for factors such as size, value, and momentum. The study constructs a positive-screened, negative-screened, and hedged portfolio to capture the alpha based on ESG strategies. Data: The study employs Bloomberg’s ESG composite score data between April 2010 and February 2020 on NSE 500 companies, including companies that, by regulation, were required to report ESG disclosures in the period of study. Method: Two mutually exclusive portfolios with differing ESG profiles were formed to construct the high- and low-ESG-rated portfolios. A third portfolio, the difference/hedged portfolio, is formed by subtracting the monthly returns of the low-ESG-rated portfolio from those of the high-ESG-rated portfolio (H-L). The study aims to contrast the returns of companies with high and low ESG scores, and of hedged portfolio. The raw and risk-adjusted returns of the hedged portfolio were then examined. Findings: The findings of the study highlight that in the Indian context, ESG-based investment strategies generate negative alpha and predict lower future returns. The findings of the study have several implications for investors and policymakers. Institutional investors with a mandate to invest in high-ESG firms may not be able to generate positive long-term risk-adjusted returns. It must also be useful for policymakers trying to push ESG-based strategies among asset managers like pension funds. Contributions: The current study add to the existing ESG literature in Indian stock market context and highlight that ESG based stock selection doesn’t create value but may satisfy nonpecuniary motives of investors.
Capital Markets Review Vol. 32, No. 2, pp. xx-xx (2024)
Exploring Threshold Effect of Board Size on Firm Value: Does Size Matter?
Yee-Ee Chia11*
1Labuan Faculty of International Finance, Universiti Malaysia Sabah, F.T. Labuan, Malaysia
Abstract: Research Question: What is the threshold level of board size for the Malaysian stock market? Motivation: This study aims to determine the appropriate size of the board of directors for the Malaysian stock market. Idea: There is a non-monotonic relationship between board size and firm value which underlies two competing views on agency and resource dependence theories. Data: Firm characteristics and board governance data are collected from the Datastream and annual reports of Bursa Malaysia for the period 2000 – 2020 covering 1,247 firms listed on the Malaysian stock market. Method/Tools: This study uses a panel threshold estimation method to explore the nonlinearity of board size on firm value, together with a battery of robustness checks. Findings: The findings of a U-shaped curve imply that before the threshold point, having more directors on the board is associated with lower firm value due to higher agency costs. However, when the threshold point exceeds a certain level, the positive effect dominates, and the super-sized boards are associated with a higher firm value. The results show that the positive impact of board size on firm value begins only after the size of the board exceeds the 1.90 threshold level which is equivalent to 7 directors. Therefore, this paper shows that the number of outsider directors is the positive channel link to the board size-firm value relationship. Contributions: This study contributes to the finance literature by exploring the nonlinearity of board size and firm value based on agency and resource dependence theories. First, the evidence of the U-shaped relationship is consistent with the resource dependence theory prediction that super-sized boards delivered higher firm value. Second, firm value benefit will begin when the board size is more than 7 number of directors. Third, a comprehensive dataset covering 21 years period from 2000 – 2020, yielded a more precisely estimated regression that allows us to determine the long-term impact of Malaysia’s corporate governance board policies after a few rounds of amendments to the MCCG report. Fourth, a board with a greater number of outsider directors is the positive channel mechanism linked to board size and firm value.
Updated on 30 September 2024 by Editorial Assistant