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The impact of South African real estate investment trust legislation on firm growth and firm value

South African Journal of Economic and Management Sciences, 2019, Vol.22 (1), p.1-8 [Peer Reviewed Journal]

COPYRIGHT 2019 African Online Scientific Information Systems (Pty) Ltd t/a AOSIS ;2019. This work is published under https://creativecommons.org/licenses/by/4.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;This work is licensed under a Creative Commons Attribution 4.0 International License. ;ISSN: 1015-8812 ;ISSN: 2222-3436 ;EISSN: 2222-3436 ;DOI: 10.4102/sajems.v22i1.2257

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  • Title:
    The impact of South African real estate investment trust legislation on firm growth and firm value
  • Author: Wesson, Nicolene ; Carstens, Riëtte
  • Subjects: Business ; Business, Finance ; Capital structure ; Communication ; Economics ; Equity ; Financial leverage ; Firm value ; Growth ; Growth rate ; Laws, regulations and rules ; Legislation ; Management ; Profit margins ; Profitability ; Profits ; Public Administration ; Real estate investment trust ; Real estate investment trusts ; Regulation ; REIT ; REITs ; Retained earnings ; South Africa ; Stock exchanges ; Sustainable growth ; Trusts ; Valuation
  • Is Part Of: South African Journal of Economic and Management Sciences, 2019, Vol.22 (1), p.1-8
  • Description: Background: Through the introduction of the South African real estate investment trust (SA REIT) structure, listed property investment firms are required to conform to international REIT standards, thereby making REITs more attractive to investors. Despite the exponential growth of the SA REIT industry over the past decade, SA REIT legislation – effective from 2013 – has imposed regulations with regard to financial leverage and profit retention, which may affect these firms’ sustainable growth rate and firm value. Aim: By deconstructing the sustainable growth rate, we investigated the potential impact of SA REIT legislation on growth rate components and considered the impact of each growth component on firm value. Setting: The introduction of SA REIT legislation provides an opportunity to investigate how regulation has affected REIT growth and value. Methods: We investigated changes in the respective sustainable growth rate components using a mixed model analysis of variance. Additionally, we employed a panel regression to assess the impact of each component on firm value (proxied by Tobin Q). Results: We found empirical evidence of decreased leverage and profit retention, as well as increased profit margins, in the REIT period, which may be indicative of firms’ reaction to regulation. In addition, we found that profit retention had a significant positive impact on firm value, while leverage showed a significant negative effect on firm value post-legislation. Conclusion: This study confirmed a significant change in growth components, with higher average profitability and sustainable growth in the REIT period, suggesting that the REIT industry responded positively to the REIT regime introduction.
  • Publisher: Pretoria: AOSIS
  • Language: English;Portuguese
  • Identifier: ISSN: 1015-8812
    ISSN: 2222-3436
    EISSN: 2222-3436
    DOI: 10.4102/sajems.v22i1.2257
  • Source: SciELO
    ROAD: Directory of Open Access Scholarly Resources
    ProQuest Central
    DOAJ Directory of Open Access Journals
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