International diversification and European firm value : the role of operating efficiency

Islam Ibrahim, Heidi Falkenbach*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

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Purpose: This study aims to investigate the impact of international diversification on the value and operating efficiency of European real estate firms. Design/methodology/approach: The study is conducted using a panel fixed effects regression model to estimate the relationship of international diversification with firm value and operating efficiency. International diversification is mainly measured via the negative of the Herfindahl–Hirschman Index (HHI) using property-level data. Firm value and operating efficiency are proxied by financial ratios observed annually from 2002 to 2021 at the firm level. Findings: The results demonstrate that international diversification has a negative effect on firm value. Additionally, it lowers operating efficiency by weakening a firm's ability to generate operating earnings from its assets. By examining whether the reduction in operating efficiency is due to the rental income channel or the capital gains channel, the authors find strong statistical evidence that international diversification negatively impacts capital gains. International diversification is negatively associated with net gains from property valuations (unrealized capital gains) and net profits from property disposals (realized capital gains). Research limitations/implications: The empirical analysis is limited to Europe. Originality/value: This paper extends the geographical diversification literature. While existing literature focuses on domestic diversification within the United States, this paper explores the effects of international diversification on European real estate firms. To the extent of the authors' knowledge, this is the first paper to examine the impact of geographical diversification on capital gains.

Original languageEnglish
Pages (from-to)381-397
Number of pages17
JournalJournal of European Real Estate Research
Issue number3
Early online date9 Nov 2023
Publication statusPublished - 24 Nov 2023
MoE publication typeA1 Journal article-refereed


  • Capital gains
  • Diversification
  • European real estate
  • Firm value
  • Operating efficiency
  • Rental income


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