Devine and Yonder (2018)

Devine, Avis, and Erkan Yonder. “Impacts of Environmentally-Sensitive Investment on Firm Performance: Decomposing Valuation and Cash Flow Effects.” Working paper (York University), 2018.

From the authors’ abstract: “Through an interdisciplinary approach, we merge the theory of the firm with economic and financial reasoning to explain the costs and benefits associated with sustainable & energy efficient investment and firm performance. Our novel model, tested with a uniquely robust and transparent real estate dataset, allows us to disentangle asset and corporate level cash flows and valuation effects related to environmentally-sensitive investment, while controlling for both product and management quality as well as socioeconomic factors which shape asset demand and performance. We find that listed real estate firms with a more sustainable portfolio attract premiums to their market valuation. These firms also carry lower systematic risk and are subject to less uninformed trading. Firms with an elevated commitment to environmental sensitivity also experience both higher asset-level rental revenues and higher operating expenses, while corporate cash flow analysis indicates lower interest costs and increased cash flows available for distribution to shareholders.”

LK comment: This paper won the 2017 Nick Tyrrell Research prize for “high quality, applied research in real estate investment.”

Link: https://www.inrev.org/news/inrev-news/devine-and-yonder-win-nick-tyrrell-research-prize