Real estate investments in developing countries: reputation, managerialism and monitoring

Abstract

Proposes a reputation‐based model to examine the managerial investment and liquidation decisions regarding real estate projects in developing countries. Unlike investments in domestic projects, foreign investments are subject to noisy monitoring, resulting in a liquidation inefficiency where managers preserve their reputational capital by not liquidating projects likely to fail as long as negative signals are not revealed to the public. The manager’s decision to invest in foreign countries is influenced not only by the difference between foreign and domestic project returns, but also by the change in reputational capital. Shows that reputation‐based utility maximization can lead to an under‐investment in profitable foreign projects. Government support to invest in foreign countries can reduce the under‐investment problem, but it can also increase the liquidation inefficiency.

Citation

Ong, S. (1997), "Real estate investments in developing countries: reputation, managerialism and monitoring", Journal of Property Valuation and Investment, Vol. 15 No. 2, pp. 131-159. https://doi.org/10.1108/14635789710166358