Emerging Markets Under Basel III: Can Moral Hazard Lead to Systematic Risk and Fragility? Analysis of REIT’s in Turkey

Arslanlı, Kerem Yavuz; Pekdemir, Dilek

doi:10.1007/978-3-319-49746-4_6

Cited by 1 publication

(1 citation statement)

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“…Arslanli and Pekdemir attempt to explain Turkey REIT's performance concerning finance sector reforms and REITs. Their findings present a performance comparison of Turkish direct real estate investments and real estate investment companies (REICs) by three property types (residential, retail and office) using risk-adjusted return.…”

Section: Literature Reviewmentioning

confidence: 99%

The idiosyncratic characteristics of Turkish REITs: evidence from financial ratios

Çelik

Arslanlı

2021

JERER

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PurposeThis paper aims to determine the specific financial ratio's effects on market value and return of assets for Turkish real estate investment trusts (REITs) traded at Istanbul Stock Exchange (ISE). The paper intends to define liquidity ratios, financial structure ratios, return ratios and stock performance ratios related to market value and return of asset.Design/methodology/approachThe study includes 17 REITs traded in ISE. The period of study is specified as the year from 2009 to 2018. Panel data analysis is applied in this study. Dependent variables are current market value and return of assets, independent variables are 12 financial ratios, which are considered to explain the model significantly. These ratios will be calculated from audited year-end balance sheets for specific periods throughout at least ten years as time series. Two different models and hypotheses have been established to identify the financial ratios that affect the market value and return of assets for REITs.FindingsAccording to the results, long-term financial loans/total assets, return of equity and working capital ratio are negatively correlated with market value, while market value/book value and total assets are correlated positively. On the other hand, market value/book value ratio, price/earning ratio, long-term financial loans/total assets and earnings per share are correlated with return of assets. REITs have high levels of financial leverage, especially in foreign currency. The striking point is that REITs hardly ever do not use financial derivatives to hedge their position again currency and interest rate risk. This approach makes the financial structures of REITs vulnerable and fragile against market volatility.Originality/valueIn Turkey, as an example of an emerging market, financial borrowing does not increase the return rates and market value for REITs due to market's idiosyncratic properties. This finding provides substantial insight into how the debt and equity allocation of Turkish REITs should be structured. Also, it has been observed that forward-looking expectations are considered more than the current situation in the market.

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Section: Literature Reviewmentioning

confidence: 99%