Co-op Debt and the Pricing of Apartments
Sammanfattning: We test for market efficiency in the Swedish market for co-op shares by examining how buyers take the debt held by a co-op into account when buying a co-op share. We argue that - in an efficient market - debt on co-op level should be reflected in the price of the co-op share. We use the tax reform of 2006 as a natural experiment and as means to test whether buyers of co-op shares take co-op leverage into account. The tax reform meant that a beneficial tax treatment of co-op debt disappeared; this should translate into a different valuation of co-op debt after the reform. More specifically we would expect that apartments in co-ops with little or no debt on the co-op level to increase in price relatively to those in highly levered co-ops. However, our results show that such a change in price did not occur, which means that buyers of co-op shares do not properly account for the debt held at the co-op level. We thereby reject the hypothesis that the Swedish market for co-op shares is efficient. Our results show that apartments in highly levered co-ops are overvalued.
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