Financing Constraints and Investment Efficiency in Canadian Real Estate and Construction Firms: A Stochastic Frontier Analysis

摘要

This article models the behavior of 179 listed and unlisted real estate and construction firms (RECFs) in Canada to study how financial constraints impact the investment efficiency of these real estate firms during the 2004–2020 period. Investment efficiency is interpreted here as the ability and ease of a firm to convert investment opportunities into actual investments. The results show that Canadian RECFs are strongly dependent on two sources of financing: equity financing and debt financing. Equity financing helped ease financing constraints due to a cash flow increase but was unlikely to decrease the uncertainty of follow-up financing of investments of these companies. This study constructed an investment efficiency index (IEI) for all 179 RECF firms. The results showed an investment rate loss of approximately 62% of the RECF firms due to financing constraints during the above period. The IEI of RECFs in Canada has demonstrated a descending pattern, and the investment efficiency level slipped from 0.47 to 0.40 from 2004 to 2020. Furthermore, a regional analysis demonstrates that compared with the RECFs located in Ontario, the investment efficiency indices of RECFs in Quebec and British Columbia were more volatile. Small RECFs demonstrated a very steady trend in investment efficiency during the sample period, which was completely different from the patterns displayed by large and medium RECFs.