Examining timberland ownership and control strategies in the global forest sector

Effects of China’s Collective Forestland Tenure Reform Policies on Forest Product Firm Values

“…Access to and control over raw production materials are especially important and serve as competitive advantages among firms in the natural resource sector, to which forest product firms belong [36]. Lähtinen et al assessed the relative importance of various resources in the forest product industry, using sawmills as an example; they found that, among all the resources that a sawmill requires, raw materials are ranked as most important [14].…”

“…They do so to obtain competitive advantages, including returns on timberland, earnings stabilization, risk reduction, and supply assurance, among other benefits [14,15,39]. Having its own raw material supply as a backup helps a firm increase its price negotiation power in timber markets and reduce the risk of a raw material price increase [36]. When timber prices are high, firms can use more of their own timber, and, conversely, firms can buy timber on open markets [15].…”

“…In situations where a forest product firm reports forestland as an asset or otherwise under its control (e.g., through leasing, contracting, cutting rights arrangements, and cooperation), that firm is said to have "forestland ownership" [36,39]. Owning timberland is critical to a forest product firm's profitability and valuation, as it provides the firm with raw production materials and the ability to respond more effectively to market fluctuations [13,38].…”

“…It should be noted, however, that holding forestland may have a negative effect on a firm's financial performance because timber production is capital-intensive and large amounts of capital can be tied to timberland [39]. Besides, forest product firms tend to feature high asset specificity and a lack of flexibility [36,39], which means that the value of production facilities would diminish if production were suspended on account of a lack of available wood and related raw materials [13]. In addition, internal organization costs may increase when industrial timberland holdings are large [15].…”

“…In summary, the primary objective of this study is to examine the effect of collective forestland tenure reform policies on the financial performance of forest product firms in China. Given the notion that the acquisition, integration, and deployment of resources as determined by forestland ownership might explain variance in firm performance [36], this research further examines whether the effect differs between firms that do and do not hold forestland.…”