Confronting Information Asymmetries: Evidence from Real Estate Markets

There are relatively few direct tests of the economic effects of asymmetric information because of the difficulty in identifying exogenous information measures. We propose a novel exogenous measure of information based on the quality of property tax assessments in different regions and apply this to...

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Bibliographic Details
Published in:The Review of financial studies 2004-07, Vol.17 (2), p.405-437
Main Authors: Garmaise, Mark J., Moskowitz, Tobias J.
Format: Article
Language:English
Subjects:
Asymmetric information
Bank loans
Capital structure
Commercial real estate
Economic behaviour
Economic theory
Effects
Empirical research
Equity
Finance
Financial economics
Financial transactions
Information
Information asymmetry
Land trusts
Loan financing
Market
Mortgage loans
Property trusts
Real estate market
Real estate sales
Studies
Tax assessments
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Summary:There are relatively few direct tests of the economic effects of asymmetric information because of the difficulty in identifying exogenous information measures. We propose a novel exogenous measure of information based on the quality of property tax assessments in different regions and apply this to the U.S. commercial real estate market. We find strong evidence that information considerations are significant. Market participants resolve information asymmetries by purchasing nearby properties, trading properties with long income histories, and avoiding transactions with informed professional brokers. The evidence that the choice of financing is used to address information concerns is mixed and weak.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhg037