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Corporate Real Estate Asset and Credit Rating

  • Korea Real Estate Review
  • 2016, 26(1), pp.47-62
  • Publisher : korea real estate research institute
  • Research Area : Social Science > Law > Law of Special Parts > Law of Real Estate
  • Published : March 31, 2016

LEE JI HYE 1,  Hee Sub Byun ORD ID 2

1고려대학교
2한림대학교

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ABSTRACT

This paper examines the effect of corporate real estate ownership on the credit rating which is based on the financial distress risk. Empirically, we find that larger ownership of investment real estate downgrades the credit rating. In the sample firms with investment grade credit rating, the ownership of investment real estate is negatively related to the credit rating, while in those with speculative grade credit rating, the ownership of possession real estate is positively related to the credit rating. Considering firm characteristics, those with large free cash flow have low credit rating as their possession of investment real estate increases. For firms with low growth opportunity, large ownership of possession real estate raises the credit rating. As the interest of corporate real estate ownership has been increased in the recent capital market, we provide strategic implications of benefits and costs of it based on the credit rating. In addition, our results could offer a basis of policies and regulations related to it.

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