Corporate investment in real property: a financial evaluation
Restricted Item. Print thesis available in the University of Auckland Library or may be available through Inter-Library Loan. The evaluation of corporate investment in real property is a neglected area in both the finance and real estate literature. Conventional investment analysis techniques are inadequate when considered in a multi-criteria intertemporal framework which simultaneously considers organisational and institutional constraints on the firm.The objective of this study was to develop a methodology which would provide a framework for the evaluation of corporate real property investment decisions. The unique characteristics of real property investment, particularly in an inflationary environment, call for a separate though contemporaneous analysis of trading asset and real property investment and financing decisions.A mathematical programming approach forms the basis of the methodology. A theoretical model of an industrial firm is developed within an optimisation based intertemporal financial policy model framework. The model seeks to maximize shareholders' wealth by optimising the present value of equity, subject to a constrained behavioural and institutional decision-making framework. Investment, financing and dividend decisions are jointly determined under alternative input conditions, that is, trading asset earning rates, inflation rates, real estate inflation hedges, firm policy goals and institutional constraints.The model is deterministic in nature and no random behaviour is assumed for the firm variables although a wide range of economic states is considered within the experimental design. The research has an empirical basis and attempts to describe optimal firm behaviour in an imperfection ridden real world environment.While a narrow view of the research concerns itself with the lease versus buy decision for real property assets, the decision problems encountered may be addressed as a subset of a larger set of economic problems. Market imperfections and frictions created by a tax code based on historical cost accounting, moderate to high inflation, and the imposition of organisational goals and institutional constraints may be examined within the methodology developed in this research. In particular, hypotheses related to the impact of institutional constraints, organisational goals and inflation are tested at the firm level and in terms of public policy issues within the specific lease versus buy decision analysis.With respect to the hypotheses tested it may be concluded that, under reasonable economic condition assumptions, the firm should own and not lease real property assets. In addition, it can be demonstrated that agency costs generated by the imposition of institutional and organisational goals are significant at the firm level in terms of sub-optimal financing, investment and dividend decisions and at the macro-economic level in terms of reduced corporate economic growth and tax revenue derived from corporate income, dividend and interest income.
|Year of publication:||
|Authors:||Snowden, Michael G.|
|Type of publication:||Book / Working Paper|
|Type of publication (narrower categories):||Thesis|
PhD Thesis - University of Auckland
Persistent link: https://www.econbiz.de/10009430982
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