Mesa de mezclas

A review of the relevant literature has revealed the substantive economic theories and empirical evidence, which underpin the conjectured relationship between the ownership structures of LPVs and their performance. The review established that currently academics and practitioners agree on the idea of maximising investor wealth via improved governance: either by adopting or converting to an optimal ownership structure.

Despite there being international agreement, it appears that this conjectured relationship has not yet been tested in the New Zealand listed property market and from the literature, there appeared to be a number of gaps (refer to Table 6) to be explored. It is these gaps that have formed the foundation for the research

questions for this study, which are:

1) What is the relationship between the ownership structure and the

performance characteristics of Listed Property Vehicles (LPVs) in the New Zealand investment market?

2) Do the performance characteristics of New Zealand’s Listed Property

Investment Companies (LPICs) provide justification for LPVs to structure or restructure as an incorporated company?

The conceptual framework that will guide the study has been developed from the literature, which focused on the relationship between the ownership structures of publically owned entities, such as REITs, and their performance.

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Table 6: Literature Gap Summary

Gap 1 There appears to be no empirical studies that reveal the nature of the relationship between NZ’s LPV ownership structures and their stock market performance. Further evidence is needed to support a LPV’s justification for specifying an optimal ownership structure in any future conversions or for creating any new property funds.

Gap 2 There appears to be no empirical studies that examine the performance characteristics of NZ LPV’s ownership structures as separate asset classes. Therefore no evidence exists as to whether LPICs have performed

differently to LPTs.

Gap 3 There appears to be no empirical studies that examine the reward-to-risk benefits for investors, in investing in either NZ LPTs or LPICs. Therefore no evidence exists as to the performance benefits that potentially could be achieved by investing in a particular ownership structure, namely LPTs or LPICs.

Gap 4 There appears to be no empirical studies that examine the diversification benefits for investors, in combining either NZ LPTs or LPICs in a mixed asset portfolio. Therefore no evidence exists as to the role that potentially either LPTs or LPICs could play in a mixed asset portfolio.

Four objectives have been developed from both the research questions and the identified gaps. These research objectives are documented below:

1) To reveal the nature and significance of LPVs in the New Zealand investment

market.

2) To explore the performance characteristics of New Zealand LPVs

3) To reveal any reward to risk benefits for investors by investing in LPTs or LPICs

4) To reveal any diversification benefits for investors by investing in either LPTs

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In order to examine the conjectured relationship, between the performance of NZ LPVs and their ownership structures, hypotheses have been developed (refer to sub- section 3.1.2.2). In considering the literature (Korda Mentha, 2010; Grant Samuel,

2010, 2011), the following two assumptions were used to develop those hypotheses:

1) That NZ’s LPTs and LPICs have performed differently.

2) That NZ’s LPICs have outperformed NZ LPTs.

The economic theory underpinning this study is that the ownership structure of an LPV is ultimately a key determinant of its stock market performance (Williamson, 1964; Sorenson, 1974; Jensen & Meckling, 1967; Pedersen & Thomsen, 1997). Previous studies (e.g. CFA-Institute, 2011; Pedersen & Thomsen, 1997; Korda Mentha, 2010; Grant Samuel, 2010, 2011), that have explored this relationship, appear to all agree that the stock market performance of publically owned vehicles is linked to their corporate governance, behaviour, and financial results (performance), which in turn is linked to their ownership structure.

The stature of the NZX Property Sector has grown since it was established in 1982. As at the 3rd September 2011 this Sector had total assets of NZD7.8 billion (Forsyth Barr, 2011) and contributed approximately 9% ($4.3 billion) to total worth of the NZX ($49.3 billion). The study by FundSource & NZX (2011) recognises the NZX Property Sector as a major asset class in the New Zealand Investment market.

Based on the literature, understanding the nature of the relationship between the ownership structures of NZ’s LPVs and their stock market performance is an important phenomenon to study. It is expected the study will determine whether the two types of LPVs in New Zealand, namely LPTs and LPICs, have performed differently. The performance of these two LPV asset classes will be measured in terms of their gross (total) returns, which will enable both their reward-to-risk benefits and their diversification benefits to be examined. As a result the nature of the conjectured relationship between the two variables of interest, namely the ownership structure of NZ LPVs and their performance, will be revealed.

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There are both practical and theoretical implications for understanding the

conjectured relationship. The practical implications include: (1) assisting investors in making investment decisions, such as asset allocation and selection, (2) assisting investors in making restructuring decisions in entities they have an interest in, for example voting to convert an existing trusts to a company structure, (3) assisting LPV management in developing strategies to improve performance (including corporate re-structuring), and (4) assisting Government in the development of legislation that impacts the ownership of LPVs. The theoretical implications include: (1)

encouraging future studies to explore the segmentation of other listed property markets by ownership structure, (2) encouraging researchers of NZ’s investment market to further segment the listed property market and determine whether further benefits can be obtained by investors, and (3) assisting other stakeholders in understanding the nature of the relationship between ownership structure and performance in a New Zealand context.

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