Do Chinese government policies affect performance of real estate enterprises?
Abstract
The Chinese central government has instituted a series of macro-economic tightening and easing policy measures on the real estate industry to stabilize the housing market in recent decades. However, our understanding of these policies and their impact on real estate firms is limited. This paper constructs an index of government policies on the real estate industry by collecting national housing policies in China from 2007 to 2019. We use this index to quantify the impact of government policies on real estate enterprises’ performance, based on data from 103 real estate enterprises listed on the Chinese A-share market. Two important conclusions are drawn from the panel data regression. First, tightened real estate policies significantly lower real estate enterprises’ profitability (ROA and ROE), while increase their liquidity risk. Second, the heterogeneity analysis shows that the tightened real estate policies yield downward impact more mildly on state-owned real estate enterprises than non-state-owned enterprises.
Keyword : government policy, real estate enterprise, nature of ownership, liquidity
How to Cite
Zhang, L., Xin, Y., Han, R., Zhang, X., Hao, N., Li, L., & Zhang, J. (2024). Do Chinese government policies affect performance of real estate enterprises?. International Journal of Strategic Property Management, 28(1), 16–28. https://doi.org/10.3846/ijspm.2024.20944
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Chen, M., Xiao, J. Z., & Zhao, Y. (2021). Confucianism, successor choice, and firm performance in family firms: Evidence from China. Journal of Corporate Finance, 69, Article 102023. https://doi.org/10.1016/j.jcorpfin.2021.102023
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Gulen, H., & Ion, M. (2016). Policy uncertainty and corporate investment. Review of Financial Studies, 29(3), 523–564. https://doi.org/10.1093/rfs/hhv050
Guo, Y., Huang, X., & Peng, Y. (2020). How does house price influence monetary policy transmission? International Review of Financial Analysis, 72, Article 101595. https://doi.org/10.1016/j.irfa.2020.101595
Gyourko, J., & Krimmel, J. (2021). The impact of local residential land use restrictions on land values across and within single family housing markets. Journal of Urban Economics, 126, Article 103374. https://doi.org/10.1016/j.jue.2021.103374
Han, W., Zhang, X., & Zheng, X. (2020). Land use regulation and urban land value: Evidence from China. Land Use Policy, 92, Article 104432. https://doi.org/10.1016/j.landusepol.2019.104432
Horra, L. D., Perote, J., & Fuente, G. D. (2021). Monetary policy and corporate investment: A panel-data analysis of transmission mechanisms in contexts of high uncertainty. International Review of Economics & Finance, 75, 609–624. https://doi.org/10.1016/j.iref.2021.04.035
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Jiang, Y., Fu, T., Long, H., Zaremba, A., & Zhou, W. (2022). Real estate climate index and aggregate stock returns: Evidence from China. Pacific-Basin Finance Journal, 75, Article 101841. https://doi.org/10.1016/j.pacfin.2022.101841
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Khwaja, A. I., & Mian, A. (2005). Do lenders favor politically connected firms? Rent provision in an emerging financial market. The Quarterly Journal of Economics, 120(4), 1371–1411. https://doi.org/10.1162/003355305775097524
Kuttner, K. N., & Shim, I. (2016). Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies. Journal of Financial Stability, 26, 31–44. https://doi.org/10.1016/j.jfs.2016.07.014
Lemmon, M., & Roberts, M. R. (2010). The response of corporate financing and investment to changes in the supply of credit. Journal of Financial and Quantitative Analysis, 45(3), 555–587. https://doi.org/10.1017/S0022109010000256
Li, X., Hui, E. C., & Shen, J. (2020a). The consequences of Chinese outward real estate investment: Evidence from Hong Kong land market. Habitat International, 98, Article 102151. https://doi.org/10.1016/j.habitatint.2020.102151
Li, X., Sun, M., & Boersma, K. (2019). Policy spillover and regional linkage characteristics of the real estate market in China’s urban agglomerations. Journal of Management Science and Engineering, 4(3), 189–210. https://doi.org/10.1016/j.jmse.2019.05.004
Li, Y., Zhu, D., Zhao, J., Zheng, X., & Zhang, L. (2020b). Effect of the housing purchase restriction policy on the real estate market: Evidence from a typical suburb of Beijing, China. Land Use Policy, 94, Article 104528. https://doi.org/10.1016/j.landusepol.2020.104528
Ling, L., Zhou, X., Liang, Q., Song, P., & Zeng, H. (2016). Political connections, overinvestments and firm performance: Evidence from Chinese listed real estate firms. Finance Research Letters, 18, 328–333. https://doi.org/10.1016/j.frl.2016.05.009
Mak, S. W., Choy, L. H., & Ho, W. K. (2007). Privatization, housing conditions and affordability in the People’s Republic of China. Habitat International, 31(2), 177–192. https://doi.org/10.1016/j.habitatint.2006.11.003
McDonald, J. F., & Stokes, H. H. (2013). Monetary policy and the housing bubble. Journal of Real Estate Finance and Economics, 46(3), 437–451. https://doi.org/10.1007/s11146-011-9329-9
Meng, R., Ning, X., Zhou, X., & Zhu, H. (2011). Do ESOPs enhance firm performance? Evidence from China’s reform experiment. Journal of Banking & Finance, 35(6), 1541–1551. https://doi.org/10.1016/j.jbankfin.2010.11.004
Morgan, P. J., Regis, P. J., & Salike, N. (2019). LTV policy as a macroprudential tool and its effects on residential mortgage loans. Journal of Financial Intermediation, 37, 89–103. https://doi.org/10.1016/j.jfi.2018.10.001
Rubio, M., & Carrasco-Gallego, J. A. (2014). Macroprudential and monetary policies: Implications for financial stability and welfare. Journal of Banking & Finance, 49, 326–336. https://doi.org/10.1016/j.jbankfin.2014.02.012
Schmalz, M. C., Sraer, D. A., & Thesmar, D. (2017). Housing collateral and entrepreneurship. Journal of Finance, 72(1), 99–132. https://doi.org/10.1111/jofi.12468
Shen, X., Huang, X., Li, H., Li, Y., & Zhao, X. (2018). Exploring the relationship between urban land supply and housing stock: Evidence from 35 cities in China. Habitat International, 77, 80–89. https://doi.org/10.1016/j.habitatint.2018.01.005
Somerville, T., Wang, L., & Yang, Y. (2020). Using purchase restrictions to cool housing markets: A within-market analysis. Journal of Urban Economics, 115, Article 103189. https://doi.org/10.1016/j.jue.2019.103189
Song, S., Jou, J. B., & Tripe, D. (2014). Can interest rates really control house prices? Effectiveness and implications for macroprudential policy. Journal of Banking & Finance, 47, 15–28. https://doi.org/10.1016/j.jbankfin.2014.06.012
Sun, R., & Zou, G. (2021). Political connection, CEO gender, and firm performance. Journal of Corporate Finance, 71, Article 101918. https://doi.org/10.1016/j.jcorpfin.2021.101918
Tian, L., & Ma, W. (2009). Government intervention in city development of China: A tool of land supply. Land Use Policy, 26, 599–609. https://doi.org/10.1016/j.landusepol.2008.08.012
Wang, H., Wu, X., Wu, D., & Nie, X. (2019). Will land development time restriction reduce land price? The persepctive of American call options. Land Use Policy, 83, 75–83. https://doi.org/10.1016/j.landusepol.2019.01.028
Yang, Z., Fan, Y., Shi, S., & Liao, J. (2018). Political connections and corporate borrowing: An analysis on the listed real estate firms in China. Journal of Real Estate Finance and Economic, 57, 315–350. https://doi.org/10.1007/s11146-017-9629-9
Yu, S., Zhang, L., Zeng, Y., & Zhang, H. (2017). Dual influences of regulatory polices on real estate enterprises’ investment-based on the perspective of supply-side reform in China. Finance Research Letters, 23, 50–57. https://doi.org/10.1016/j.frl.2017.03.003
Zheng, H., Zhang, R., & Wu, J. (2023). Value of qualification to buy a house: Evidence from the housing purchase restriction policy in China. Cities, 135, Article 104197. https://doi.org/10.1016/j.cities.2023.104197
Zheng, X., Chen, X., & Yuan, Z. (2021). Exploring the spatial spillover effect of home purchase restrictions on residential land prices based on the difference-in-differences approach: Evidence from 195 Chinese cities. Land Use Policy, 102, Article 105236. https://doi.org/10.1016/j.landusepol.2020.105236
Akinci, O., & Olmstead-Rumsey, J. (2018). How effective are macroprudential policies? An empirical investigation. Journal of Financial Intermediation, 33, 33–57. https://doi.org/10.1016/j.jfi.2017.04.001
Alam, Z., Alter, A., Eiseman, J., Gelos, G., Kang, H., Narita, M., Nier, E., & Wang, N. (2019). Digging deeper – Evidence on the effects of macroprudential policies from a new database (IMF Working Paper No. 19/66). International Monetary Fund. https://doi.org/10.5089/9781498302708.001
Almeida, H., & Campello, M. (2007). Financial constraints, asset tangibility, and corporate investment. Review of Financial Studies, 20(5), 1429–1460. https://doi.org/10.1093/rfs/hhm019
Bailey, W., Huang, W., & Yang, Z. (2011). Bank loans with Chinese characteristics: Some evidence on inside debt in a state-controlled banking system. Journal of Financial and Quantitative Analysis, 46(6), 1795–1830. https://doi.org/10.1017/S0022109011000433
Carreras, O., Davis, E. P., & Piggott, R. (2018). Assessing macroprudential tools in OECD countries within a cointegration framework. Journal of Financial Stability, 37, 112–130. https://doi.org/10.1016/j.jfs.2018.04.004
Cerutti, E. M., Claessens, S., & Laeven, L. (2017). The use and effectiveness of macroprudential policies: New evidence. Journal of Financial Stability, 28, 203–224. https://doi.org/10.1016/j.jfs.2015.10.004
Chen, M., Xiao, J. Z., & Zhao, Y. (2021). Confucianism, successor choice, and firm performance in family firms: Evidence from China. Journal of Corporate Finance, 69, Article 102023. https://doi.org/10.1016/j.jcorpfin.2021.102023
Chen, Y., Mo, D., Tang, S., & Li, H. (2023). Measuring real esate policy uncertainty in China. China Economic Quarterly International, 3(1), 23–34. https://doi.org/10.1016/j.ceqi.2023.02.003
Deng, Q., Alvarado, R., Cheng, F., Cuesta, L., Wang, C., & Pinzon, S. (2023). Long-run mechanism for house price regulation in China: Real estate tax, monetary policy or macro-prudential policy? Economic Analysis and Policy, 77, 174–186. https://doi.org/10.1016/j.eap.2022.11.009
Du, Z., & Zhang, L. (2015). Home-purchase restriction, property tax and housing price in China: A counterfactual analysis. Journal of Econometrics, 188(2), 558–568. https://doi.org/10.1016/j.jeconom.2015.03.018
Floetotto, M., Kirker, M., & Stroebel, J. (2016). Government intervention in the housing market: Who wins, who loses? Journal of Monetary Economic, 80, 106–123. https://doi.org/10.1016/j.jmoneco.2016.04.005
Gulen, H., & Ion, M. (2016). Policy uncertainty and corporate investment. Review of Financial Studies, 29(3), 523–564. https://doi.org/10.1093/rfs/hhv050
Guo, Y., Huang, X., & Peng, Y. (2020). How does house price influence monetary policy transmission? International Review of Financial Analysis, 72, Article 101595. https://doi.org/10.1016/j.irfa.2020.101595
Gyourko, J., & Krimmel, J. (2021). The impact of local residential land use restrictions on land values across and within single family housing markets. Journal of Urban Economics, 126, Article 103374. https://doi.org/10.1016/j.jue.2021.103374
Han, W., Zhang, X., & Zheng, X. (2020). Land use regulation and urban land value: Evidence from China. Land Use Policy, 92, Article 104432. https://doi.org/10.1016/j.landusepol.2019.104432
Horra, L. D., Perote, J., & Fuente, G. D. (2021). Monetary policy and corporate investment: A panel-data analysis of transmission mechanisms in contexts of high uncertainty. International Review of Economics & Finance, 75, 609–624. https://doi.org/10.1016/j.iref.2021.04.035
Hu, Z. (2022). Six types of government policies and housing prices in China. Economic Modelling, 108, Article 105764. https://doi.org/10.1016/j.econmod.2022.105764
Jiang, Y., Fu, T., Long, H., Zaremba, A., & Zhou, W. (2022). Real estate climate index and aggregate stock returns: Evidence from China. Pacific-Basin Finance Journal, 75, Article 101841. https://doi.org/10.1016/j.pacfin.2022.101841
Kang, Q., Wu, J., Chen, M., & Jeon, B. N. (2021). Do macroprudential policies affect the bank financing of firms in China? Evidence from a quantile regression approach. Journal of International Money and Finance, 115, Article 102391. https://doi.org/10.1016/j.jimonfin.2021.102391
Khwaja, A. I., & Mian, A. (2005). Do lenders favor politically connected firms? Rent provision in an emerging financial market. The Quarterly Journal of Economics, 120(4), 1371–1411. https://doi.org/10.1162/003355305775097524
Kuttner, K. N., & Shim, I. (2016). Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies. Journal of Financial Stability, 26, 31–44. https://doi.org/10.1016/j.jfs.2016.07.014
Lemmon, M., & Roberts, M. R. (2010). The response of corporate financing and investment to changes in the supply of credit. Journal of Financial and Quantitative Analysis, 45(3), 555–587. https://doi.org/10.1017/S0022109010000256
Li, X., Hui, E. C., & Shen, J. (2020a). The consequences of Chinese outward real estate investment: Evidence from Hong Kong land market. Habitat International, 98, Article 102151. https://doi.org/10.1016/j.habitatint.2020.102151
Li, X., Sun, M., & Boersma, K. (2019). Policy spillover and regional linkage characteristics of the real estate market in China’s urban agglomerations. Journal of Management Science and Engineering, 4(3), 189–210. https://doi.org/10.1016/j.jmse.2019.05.004
Li, Y., Zhu, D., Zhao, J., Zheng, X., & Zhang, L. (2020b). Effect of the housing purchase restriction policy on the real estate market: Evidence from a typical suburb of Beijing, China. Land Use Policy, 94, Article 104528. https://doi.org/10.1016/j.landusepol.2020.104528
Ling, L., Zhou, X., Liang, Q., Song, P., & Zeng, H. (2016). Political connections, overinvestments and firm performance: Evidence from Chinese listed real estate firms. Finance Research Letters, 18, 328–333. https://doi.org/10.1016/j.frl.2016.05.009
Mak, S. W., Choy, L. H., & Ho, W. K. (2007). Privatization, housing conditions and affordability in the People’s Republic of China. Habitat International, 31(2), 177–192. https://doi.org/10.1016/j.habitatint.2006.11.003
McDonald, J. F., & Stokes, H. H. (2013). Monetary policy and the housing bubble. Journal of Real Estate Finance and Economics, 46(3), 437–451. https://doi.org/10.1007/s11146-011-9329-9
Meng, R., Ning, X., Zhou, X., & Zhu, H. (2011). Do ESOPs enhance firm performance? Evidence from China’s reform experiment. Journal of Banking & Finance, 35(6), 1541–1551. https://doi.org/10.1016/j.jbankfin.2010.11.004
Morgan, P. J., Regis, P. J., & Salike, N. (2019). LTV policy as a macroprudential tool and its effects on residential mortgage loans. Journal of Financial Intermediation, 37, 89–103. https://doi.org/10.1016/j.jfi.2018.10.001
Rubio, M., & Carrasco-Gallego, J. A. (2014). Macroprudential and monetary policies: Implications for financial stability and welfare. Journal of Banking & Finance, 49, 326–336. https://doi.org/10.1016/j.jbankfin.2014.02.012
Schmalz, M. C., Sraer, D. A., & Thesmar, D. (2017). Housing collateral and entrepreneurship. Journal of Finance, 72(1), 99–132. https://doi.org/10.1111/jofi.12468
Shen, X., Huang, X., Li, H., Li, Y., & Zhao, X. (2018). Exploring the relationship between urban land supply and housing stock: Evidence from 35 cities in China. Habitat International, 77, 80–89. https://doi.org/10.1016/j.habitatint.2018.01.005
Somerville, T., Wang, L., & Yang, Y. (2020). Using purchase restrictions to cool housing markets: A within-market analysis. Journal of Urban Economics, 115, Article 103189. https://doi.org/10.1016/j.jue.2019.103189
Song, S., Jou, J. B., & Tripe, D. (2014). Can interest rates really control house prices? Effectiveness and implications for macroprudential policy. Journal of Banking & Finance, 47, 15–28. https://doi.org/10.1016/j.jbankfin.2014.06.012
Sun, R., & Zou, G. (2021). Political connection, CEO gender, and firm performance. Journal of Corporate Finance, 71, Article 101918. https://doi.org/10.1016/j.jcorpfin.2021.101918
Tian, L., & Ma, W. (2009). Government intervention in city development of China: A tool of land supply. Land Use Policy, 26, 599–609. https://doi.org/10.1016/j.landusepol.2008.08.012
Wang, H., Wu, X., Wu, D., & Nie, X. (2019). Will land development time restriction reduce land price? The persepctive of American call options. Land Use Policy, 83, 75–83. https://doi.org/10.1016/j.landusepol.2019.01.028
Yang, Z., Fan, Y., Shi, S., & Liao, J. (2018). Political connections and corporate borrowing: An analysis on the listed real estate firms in China. Journal of Real Estate Finance and Economic, 57, 315–350. https://doi.org/10.1007/s11146-017-9629-9
Yu, S., Zhang, L., Zeng, Y., & Zhang, H. (2017). Dual influences of regulatory polices on real estate enterprises’ investment-based on the perspective of supply-side reform in China. Finance Research Letters, 23, 50–57. https://doi.org/10.1016/j.frl.2017.03.003
Zheng, H., Zhang, R., & Wu, J. (2023). Value of qualification to buy a house: Evidence from the housing purchase restriction policy in China. Cities, 135, Article 104197. https://doi.org/10.1016/j.cities.2023.104197
Zheng, X., Chen, X., & Yuan, Z. (2021). Exploring the spatial spillover effect of home purchase restrictions on residential land prices based on the difference-in-differences approach: Evidence from 195 Chinese cities. Land Use Policy, 102, Article 105236. https://doi.org/10.1016/j.landusepol.2020.105236