Corporate Diversification of Real Estate Investment Trusts (REITs) In A Post-Pandemic World: Lessons from Malaysia and Singapore

Abstract

Research Question: This study explores the impact of corporate diversification on the financial performance of Real Estate Investment Trusts (REITs) in Malaysia (M-REITs) and Singapore (S-REITs), with a focus on the moderating influence of growth opportunities. Motivation: The motivation behind this research stems from the observed divergence in diversification strategies among REITs in different countries. While diversified REITs are prevalent in Malaysia, specialized REITs dominate the United States and Japan. This study seeks to shed light on the implications of corporate diversification for REITs in the Southeast Asian context and highlight the role of growth opportunities in shaping their financial performance. Idea: The core idea of this research is to examine the relationship between corporate diversification and financial performance in the context of M-REITs and S-REITs. We employ the Entropy Index to measure corporate diversification and the Dynamic System Generalized Method of Moments (DSGMM) to analyze data from 2009 to 2020, encompassing the pre and during COVID-19 pandemic period. Data: We collect and analyze data from leading REITs in Malaysia and Singapore, representing the ASEAN region's REIT market. Notably, we exclude Thailand, Vietnam, and Indonesia due to their nascent REIT markets. The dataset covers critical aspects of corporate diversification and uses the PI as a performance measure. Method/Tools: Our empirical framework encompasses the DSGMM approach to evaluate the relationship between corporate diversification and financial performance. We also explore the moderating effect of growth opportunities on this relationship. Findings: Our findings reveal that corporate diversification significantly affects the financial performance of REITs, with a focus on PI as the performance measure. However, when considering Tobin'sQ ratio, the results exhibit variations. While All-REITs and M-REITs demonstrate significance levels ranging from 1% to 10%, S-REITs show different results. Additionally, growth opportunities significantly moderate the impact of corporate diversification on financial performance, as evidenced by All-REITs and S-REITs. Although M-REITs lack sufficient data for strong significance, they also indicate the potential influence of growth opportunities. Contributions: This paper contributes to the literature by offering insights into the dynamics of corporate diversification, growth opportunities, and financial performance within the M-REITs and S-REITs. The findings underscore the importance of considering these factors when assessing the performance of REITs, particularly in diverse markets like the ASEAN region