Client influence or the valuer's behavior? An empirical study of listed companies' valuation in Taiwan
| Date | 14 November 2023 |
| Pages | 348-364 |
| DOI | https://doi.org/10.1108/JPIF-10-2022-0069 |
| Published date | 14 November 2023 |
| Author | Fong-Yao Chen,Michael Y. Mak |
Client influence or the valuer’s
behavior? An empirical study of
listed companies’valuation
in Taiwan
Fong-Yao Chen
Department of Land Economics, National Chengchi University,
Taipei, Taiwan, and
Michael Y. Mak
School of Architecture and Built Environment, The University of Newcastle,
Newcastle, Australia
Abstract
Purpose –Valuersshould independentlyassess market value.The purpose of this articleis to analyze whether
the valuationbehavior remains independentwhen commissioned bypublicly listed companiesin Taiwan.
Design/methodology/approach –This study used both quantitative and qualitative methods. Quantitative
data analysis was used to examine the estimated premium ratio and estimated divergent ratio with the
independent sample ttest and Wilcoxon-Mann-Whitney test. To complement and validate the quantitative
analysis, open-ended questionnaires were conducted, providing additional insights into the research findings.
Findings –The results showed that there is a significant difference in estimated valuations commissioned by
representatives of buyers and sellers, and the estimated premium ratios commissioned by representatives of
buyers were higher than those of sellers. Furthermore, the open-ended questionnaires results indicate that
these findings may be influenced by clients for less experienced appraisers. However,for senior appraisers, this
is seen as an action to gain a better understanding of the valuation purpose and always within a reasonable
price range. In addition, client influence is not a static factor; it may transform into the valuer’s behavior as the
appraiser’s experience grows and deepens.
Practical implications –It is difficult to obtain valuation reports commissioned by representatives of both
buyers and sellers for the same property transactions. In this study, data were obtained from the Market
Observation Post-System (MOPS) in Taiwan. As valuation reports could not be obtained, estimated valuations
and transaction prices are used to calculate estimated premium ratio and estimated divergent ratios.
Originality/value –Previous investigations of the client effect have been conducted using qualitative
methods including questionnaire surveys, in-depth interviews and experimental design. However, these
studies are subject to moral hazard. This study may be the first study that has access to data on valuations for
both buyers and sellers in such a formal setting.
Keywords Real estate valuation, Client influence, Behavior research, Public company transaction,
Negotiation, Taiwan
Paper type Research paper
1. Introduction
Valuation is the basis to find out the market value in real estate transaction. According to
International Valuation Standards (IVS), market value is defined as the estimated amount for
which an asset should exchange on the valuation date between a willing buyer and a willing
sellerinanarm’s length transaction, and where the parties had each acted knowledgeably,
prudently and without compulsion. However, due to lack of homogeneous assets and precise
data, it is hard for appraisers to provide an objective and definitive figure on valuation estimates.
In Taiwan,when publicly listed companiesacquire or dispose of real estatewith an amount
exceeding NT$300 million, they are required to obtain the board of directors’approval.
Therefore,companies must ensurethat valuations supportingthe buy/selltransaction price fall
withina specified margin.“Opinion shopping”isa practice used to selectreal estate appraisers.
JPIF
42,4
348
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 9 October 2022
Revised 24 April 2023
20 July 2023
15 September 2023
Accepted 16 September 2023
Journal of Property Investment &
Finance
Vol. 42 No. 4, 2024
pp. 348-364
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-10-2022-0069
Previous research has discussed client influence through questionnaire surveys, in-depth
interviews (Levy and Schuck, 1999,2005;Chen and Yu, 2009;Kamalahasan et al., 2015;
Małkowska et al., 2019) and experimental design (Diaz and Hansz, 1997;Hansz, 2004).
However, these methods are susceptible to moral hazard. For example, Klamer et al. (2019)
noted that the results of their questionnaire reflect reasoning behavior and not actual
performance. Crosby et al. (2010,2018) used data from the Investment Property Databank and
established the motivation for different client types to influence valuations upwards or
downwards and then looked at whether the valuations did indeed in the direction of the
motivation by empirical research. This study has adopted an empirical research approach
and open-ended questionnaires to provide analyses on both buyers’and sellers’influence and
effects on real estate valuation.
This articlefirst introduces the regulationsin Taiwan governing publiclylisted companies’
acquisitionor disposal of assetsand explains at which stageof the process client influencemay
arise. Itthen reviews relevant literature on clientinfluence and conducts researchthrough both
quantitative andqualitative methods. Finally,results and findings are detailed.
2. Literature review
2.1 Negotiation process between public companies in Taiwan
Pursuant to Article 9 of the “Regulations Governing the Acquisition and Disposal of Assets
by Public Companies”in Taiwan:
(1) When the acquisition or disposal of real estate transactions by public companies
more, valuation report provided by a professional appraiser must be obtained before
the transaction can be completed
(2) When the transaction amount exceeds NT$1 billion (approx. US$33 million), at least
two appraisers must be appointed to provide valuation reports
(3) Under the following circumstances, the valuation reports issued by the appraiser
must be reviewed by the companies’accountant to express opinions on the reasons
for the differences and the appropriateness of the transaction price, except that the
valuations of the acquired assets are all higher than the transaction amount, or the
valuations of the disposed assets are all lower than the transaction amount:
(i) the difference between the appraiser’s valuation and the transaction amount is
more than 20% of the transaction amount
(ii) the difference between two or more appraisers’valuations are more than 10%
of the transaction amount
From the above-mentioned regulations, it is obvious that the competent authority hopes that
when a publiccompany acquires or disposesof real estate, the differencebetween the valuation
and the transactionamount should be within20%, and the valuation gap between twoor more
appraisersshould not exceed 10%of the transaction amount.However, with the exceptionthat
the valuationsof acquiredassets are all higher thanthe transaction amount,or the valuations of
disposal assetsare all lower than the transaction amount, it can be consideredreasonable.
Based on Article 9 of the “Regulations Governing the Acquisition and Disposal of Assets by
Public Companies”in Taiwan and market observations, these transactions are mostly entrusted
by the company’s staff to an appraiser, and then the valuations are sent to the company’sboard
of directors for approval, hence negotiated or auctioned for sale. If the entrusted valuation of the
seller is lower than the transaction price, it implies that the staff improved the extent of the
company’s profit and hence the performance of thestaff are commended.
Client influence
valuation in
Taiwan
349
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