Land Acquisition Outcome, Developer Risk Attitude and Land Development Timing

J Real Estate Finan Econ (2019) 59:233–271
https://doi.org/10.1007/s11146-018-9663-2
Land acquisition outcome, developer risk attitude

and land development timing
Zan Yang 1 & Shuping Wu 1
Published online: 6 June 2018

# Springer Science+Business Media, LLC, part of Springer Nature 2018
Abstract Based on the matched date of initial vacant land parcels and final completed
housing projects in Beijing of China from 2003 to 2015, we investigate the correlations
of land acquisition outcomes, developer risk attitude and land development timing. We
find that real estate developers’ land acquisition gains or losses relative to a referential
land acquisition cost have significant impacts on their decisions of land development
timing. Developers will postpone the land development process after prior losses in the
land acquisition stage. By introducing behavioral economics into the real option model
of land development, we explain this relationship from the perspective of varying risk
attitude of real estate developers.
Keywords Timing of land development . Prior outcomes . Risk attitude . Real estate
developer
Introduction
Since the pioneering study of Myers (1977), land development decisions have been
widely investigated under the framework of real options (Capozza and Li 2001, 2002;
Somerville 2001; Wang et al. 2015). Under the real option valuation (ROV) analysis
framework, we investigate whether real estate developers’ land acquisition outcomes
affect their sequential decision on the timing of land development in this paper. We use a
unique land dataset that contains Blife cycle^ information for each parcel including
vacant land, construction in process, and pre-sale housing projects in Beijing of China
* Zan Yang
zanyang@tsinghua.edu.cn
Shuping Wu
zhiziwsp@163.com
1
Tsinghua Hang Lung Center for Real Estate Studies, Institute of Real Estate Studies, Department of
Construction Management, Tsinghua University, Beijing 100084, China
234 Z. Yang,S. Wu
between 2003 and 2015. We find that the land acquisition outcomes, which denote gains
or losses relative to a reference land acquisition cost, have significant impacts on real
estate developers’ decision of land development timing. Developers will postpone their
land development process if they have suffered prior losses in the land acquisition stage.
We explain this relation of land acquisition outcomes and land development timing
from the perspective of developer’s risk attitude, extending the standard ROV research by
considering the role of risk attitudes in the real option value. Real option value is
independent of investors’ risk attitudes (Jackwerth 2004) in the standard ROV model
under the assumption of a complete market (Capozza and Li 2002; Fama and MacBeth
1973; Shi et al. 2015) in which investors have no risk-free arbitrage opportunities.
However, this assumption has been challenged by a growing number of studies that have
found deviations from the evaluated prices using the standard real option model (Black
1975; Emanuel and MacBeth 1982), the equity premium puzzle (Campbell and Cochrane
2000; Mehra and Prescott 1985), the calendar effect (Cadsby and Ratner 1992; Rozeff and
Kinney 1976) and the weather effect (Hirshleifer and Shumway 2003; Saunders 1993). In
particular, it is widely argued that the real estate market is inefficient and incomplete (Case
and Shiller 1989; Meese and Wallace 1994), as a result of the heterogeneity of products
(Kummerow and Lun 2005), high transaction costs (Genesove and Mayer 2001), asym-
metric information (Evans 1995), limited arbitrage (Genesove and Mayer 2001) and
irrational investors (DellaVigna 2009). It can be particularly the case in the urban land
market in China (Zheng and Liu 2006). First, the Chinese urban per capita disposable
income more than tripled between 2003 and 2014 (National Bureau of Statistics of the
People’s Republic of China 2015), which may result in less efficient housing markets as
argued by Capozza et al. (1997). Second, frequent and intensive government intervention
as one of the distinguishing features of the Chinese land market (Wang et al. 2015) may
further decrease market efficiency. Third, the presale policy in China intensifies informa-
tion asymmetry, as developers possess more information than buyers regarding the
construction work under presale contracts (Leung et al. 2007). In the inefficient and
incomplete market, the cash flow from subsequent investment payoffs cannot be
completely spanned by those of existing payoffs. Developers thus may face some
remaining idiosyncratic risks that cannot be hedged against.
Several theoretical studies have emphasized the necessity to relax the market
completeness and risk-neutrality assumptions in option theory and consider the effects
of risk attitudes on option values. Henderson (2007), Hugonnier and Morellec (2007)
and Chronopoulos et al. (2011) have extended ROV analysis by considering risk
aversions under the Expected Utility theory. Specific to the real estate market, real
estate investors’ subjective degree of risk aversion is also found to play a vital role in
real estate investment decisions (Fan et al. 2012; Isik 2005; Shilling 2003). But limited
empirical evidences have been found to support the theoretical propositions. Therefore
this paper attempts to fill this gap by empirically investigating the role of risk attitudes
when investigate the real option value in an inefficient and incomplete market.
Moreover, we focus on the reference-dependent risk attitudes based on the Prospect
Theory (Tversky and Kahneman 1986), instead of absolute risk aversion under the
rational Expected Utility theory as Henderson (2007), Hugonnier and Morellec (2007)
and Chronopoulos et al. (2011). With the development of behavioral finance (Rabin
1998; Tversky and Kahneman 1986), investors have been empirically found to have
reference-dependent risk attitudes (Heath et al. 1999; Howell and Jägle 1997; Miller and
Land acquisition outcome, developer risk attitude and land... 235
Shapira 2004). Shefrin and Statman (1993), Breuer and Perst (2007), and Versluis et al.
(2010) have introduced the behavioral economic theories into the option valuation
analysis, and highlighted the significant merits of behavioral economic theory in
extending option pricing model, with a special emphasize of the (cumulative) Prospect
Theory proposed by Kahneman and Tversky (1979). The incorporation of behavioral
economics still make sense in the real option valuation analysis even when investors are
firms instead of individuals, because firms’ behavior may also deviate from the rational
expected utility as results of both internal and external factors. On the internal side,
cognitive imperfections of managers, such as optimism, overconfidence, bounded
rationality and reference preferences (Howell and Jägle 1997; Shefrin 2001) are found
to have important impacts on firm behavior. And when most major firm decisions are
made by board members, firm behavior tends to amplify individuals’ cognitive errors
(Russo and Schoemaker 1989). On the external side, the behavioral impediments such
as irrational investors and analysts (Shefrin 2001), also play non-negligible role in firm’s
behavior. It is particularly the case for the real estate market, where non-professional,
inexperienced and irrational investors are involved (DellaVigna 2009; Genesove and
Mayer 2001; Paraschiv and Chenavaz 2011) and the prices may not fully capitalize all
available market information (Case and Shiller 1989).
Research of Shefrin and Statman (1993), Breuer and Perst (2007), and Versluis et al.
(2010) has confirmed the significance of introducing the behavioral economic theories
into the financial option valuation analysis, but more discussions are needed for real
option valuation analysis. Findings of the paper shed light on the importance of
behavioral factors in real option pricing, as well as in the corporate behavior.
We have organized this paper into six sections. In Section 3, we describe the
background of land acquisition and development in China. In Section 4, we present
our data, variables and preliminary results on the relations between land acquisition
outcomes and land development timing. In Section 4, we explain the results from the
perspective of risk attitude under the real option theory and behavioral economics and
empirically test the hypotheses. In Section 5, robustness checks are presented. We
conclude the paper in Section 6.
Background: Land acquisition and development in China
Land leasing methods
The land leasing reform in China started in the late 1980s1. In 2004, a special notice
was issued requiring all urban land that was planned to be profit making (such as for
residential, commercial and office use) to be offered by tender auctions (zhaobiao), oral
auctions (paimai) or listing auctions (guapai)2. This was a milestone in China’s land
market development, as from then on developers have had to buy the right to use profit-
oriented lands through these three costly auction mechanisms.
1
A comprehensive analysis of the reforms of the Chinese land market and China’s land use policy can be
found in many articles, such as Ding (2003, 2004), Ho and Lin (2003) and Zhu (2004, 2005).
2
On March 31, 2004, the Ministry of Land and Resources and the Ministry of Supervision jointly issued the
BOn the Continuation of Business Land Use Rights for Transferring Auction Listing of Law Enforcement
Work Notice^ (MLR [2004] No. 71).
236 Z. Yang,S. Wu
Oral auctions (paimai) have not appeared in Beijing. The format of a listing auction
(guapai) follows the mode of a two-stage ascending auction, such that land is sold to the
bidder who offers the highest price. This price must either equal or exceed the reserve price.
At closing time, if two or more bidders want to increase the offer in hand, the listing auction
is progressed to an on-the-spot oral auction. At the end of the auction, the highest bidder
wins the parcel. Tender auctions (zhaobiao) are more akin to sealed-bid auctions, in which
each bid is scored by the bid evaluation committee based on a comprehensive comparison of
factors, such as the bidding price, payment conditions, proposed development plan, financial
solvency of the bidder and performance and reputation of the corporation. The land is leased
to the bidder who obtains the highest score on the combination of these factors. Empirical
research has found that listing auctions tend to have higher land prices than comparable land
granted by tender auctions (Yang et al. 2014).
Housing presale policy
After they are granted land, developers in China are required to start construction within
two years after land acquisition (Wang et al. 2015). Developers are allowed to sell units of
their developing housing units before construction is completed and buyers make payments
immediately after signing the pre-purchase contract (Fan et al. 2012; Wang et al. 2000). The
presale process was formally introduced to the Chinese property market by the Ministry of
Housing of Urban and Rural Development (MOHURD) in 19943. It requires real estate
developers to apply for a presale permit before starting a presale and preform a presale
several days after obtaining a permit. Developers can choose to sell apartments for a whole
development at once or in a number of stages, applying for presale permits for each stage
(Shi et al. 2015). Furthermore, in China, affordable housing and commercial housing are
often constructed concurrently within a land parcel; affordable housing must be constructed
and pre-sold before commercial housing4. Such a presale policy is of particular importance,
not only because it increases the degree of market incompleteness and investors’ irratio-
nality in the Chinese context, as we mentioned in the literature review. The timing of presale
is important for land development decisions. Housing presale offers developers an impor-
tant alternative source for financing their projects as well as private information for future
demand estimations. This is particularly important in decision making in the Chinese
market, which is likely to have a longer than normal development phase (Wang et al. 2000).
Land acquisition outcome and land development timing
Data and variables
The data in this study is from 2003 to 20155. The data includes residential land parcel
transaction data from the Beijing Municipal Bureau of Land and Resources (BMBLR),
the corresponding housing project characteristics data from the China Real Estate Index
3
See the Urban Real Estate Management Act 1994 and its specific provisions (i.e., BUrban Management
Practices: Pre-sale of Commercial Housing^).
4
According to BThe Notice about Accelerating the Affordable Housing Project Construction,^ issued by the
Beijing Municipal Commission of Housing and Urban-rural Development.
5
As of the end of May of 2015.
System (CREIS), and the corresponding housing presale date and construction com-
pletion date data from the Beijing Municipal Commission of Housing and Urban-rural
Development (BMCHUD). The sample includes 660 residential land parcels.
The data for this analysis come from China’s capital, Beijing, a big city with high land
prices and concentrated real estate developers. Given the significant heterogeneity across
the city, we divide the whole city into six districts, each with similar housing price
volatilities. The spatial distributions of these land parcels and districts are shown in Fig. 1.
Land acquisition outcomes We denote land acquisition outcomes for developers as

the gains or losses relative to a referential land acquisition cost. The measurement of
land acquisition outcomes depends on the identification of the reference point, which is
particularly difficult. Paraschiv and Chenavaz (2011) indicate that reference point in the
housing market depends on many factors, such as sellers’ market roles, market
evolution and other available information. Furthermore, the reference point may shift
across different decisions, even for the same decision makers (Bleichrodt 2007). In
most existing behavioral economics studies, the reference point is based on the author’s
inferences. In this study, we use several alternative reference points to measure land
acquisition outcomes as the prior outcomes (POs) for the following land development
stage, as shown in Table 1.
For each land plot, the deviation of the land acquisition cost from the real intrinsic
land value, P0iE, should be used as the PO. If the P0iE is lower, the PO may be
considered to be a gain, as developers acquire valuable land at a relatively lower land
cost. Otherwise, POs may be considered to be losses, as developers acquire land
through a relatively higher cost. We estimate the real intrinsic land value using the
hypothetical development method (HDM), as shown in Eq. (1):
LV i ¼ HV i *ð1 þ gÞ*ð1−c−rÞ−C ð1Þ
Where LV is the estimated land value6, HV is the value of the housing project built
on the land plot, g is the growth rate7, c is the rate of taxes and dues, r is the profit ratio
and C is the cost of construction and installation. HVi in Eq. (1) is estimated as the
spatiotemporal-weighted average value of all competitive projects by the market
comparison approach (MCA) in Eq. (2).
j ¼ N of competitive
projects
HV i ¼ ∑ w j * HV j ð2Þ
j¼1
6
It is important to mention that the calculated LVi is the value of land plot i in year 2015, instead of the specific
transacted year of land plot i. By doing so, we hope to capture developer’s risk attitude change in the long
term. We will further explain this point later.
7
According to the estimation of CREIS based on efficient market transaction and price data at city level, we
assign the g =15% for our Beijing samples. CREIS estimates the growth rates at the city-tier level, reporting
the growth rate g equals to 15% for the first tier cities, 10% for the 1.5 tier cities, 7% for the second tier cities,
and 5% for other cities.
238 Z. Yang,S. Wu
Fig. 1 Distribution of sample land parcels in six districts. Note: District 1 includes Xicheng, Dongcheng and
Shijingshan; District 2 includes Haidian; District 3 includes Chaoyang; District 4 includes Fengtai; District 5
includes Daxing, Changping, Tongzhou and Shunyi; and District 6 includes Yanqing, Miyun, Mentougou,
Fangshan, Huairou and Pinggu
Where wj is the spatiotemporal-weight of project j and HVj is the housing value of

competitive project j8. We substitute Eq. (2) into Eq. (1) to obtain the real intrinsic land
value, LVi and POEi 9.
As discussed in Section 3, land listing in China follows the typical English
auction process, whereas land tender auctions follow a first-price sealed-bid
auction process. It is generally believed in auction theory that English open
auctions generate higher land prices than first-price sealed-bid auctions, as
bidders in English auctions can infer other bidders’ information by observing
their bids (Chow and Ooi 2014). Furthermore, government intervention in land
tender auctions further decreases prices due to the political influence on re-
gional development and social fairness (Yang et al. 2014). Therefore, we use
POLi as our second measurement of PO. The basic assumption is that devel-
opers consider land granted by listing to be a Bloss,^ as they suppose they can
acquire the land parcel at a lower cost if through a tender auction.
8
The competitive projects are the projects around the land plot i within a buffer with a radius of 3 kilometers,
which have been transacted between 2013 and 2015.
9
Certainly, in calculation of POEi , we made a time adjustment to make the real land price and the evaluated
land value comparable. We adjusted the LVi, 2015 obtained from Eqs. (1) and (2) into the LVi, t, which is the land
value of land plot i in the transacted year by using LVi, t = LVi, 2015/(1 + lpi2015/t). lpi2015/t is land price change
between year t and year 2015 in Beijing based on the Chinese Residential Land Price Index (CRLPI) (Wu
et al. 2012).
Table 1 Definitions of prior outcomes
Prior Outcome Definition Value

land acquasition costi
POEi lnevaluated land price Þ Continuous value
i
land acquasition costi
PORi ln reserve land pricei Continuous value
POLi The type of land auction POLi ¼ 1, for listed land
POLi ¼ 0, for tender land
Moreover, the difference between the land acquisition cost and the reserved land price,
PORi , can be used as another measurement of PO. PORi is similar to the land price
premium10, which is often used as the indicator of land transaction outcomes in the Chinese
land market (Liu and Qu 2015). If the PORi is 0, we can infer the outcome as a gain; if the
PORi is quite high, we can infer it as a loss. As the reserved land price in PORi is set based on
the benchmark land price, which is also evaluated by the HDM or the MCA, the reserved
land price in the PORi should show a similar trend but be proportionally lower than the
evaluated land price in the POEi . We can use PORi in the robustness check of POEi .
The annual average of estimated POs is shown in Fig. 2. The trend of POE, is similar
to but higher than that of POR mentioned above. The trend of POL, however, is quite
different from that of POE and POR. Thus, we expect POE and POL to have different
effects on the timing of land development.
Land development timing We use the duration from land acquisition to housing
presale as the proxy for timing of land development, similar to Wang et al.
(2015). This is a common way to estimate the timing of land development due
to China’s unique housing presale policy (Wang et al. 2015). We also use the
duration from land acquisition to construction completion, similar to Cunning-
ham (2006), to investigate developers’ different decision processes in different
stages. Based on our sample, the average survival time from land acquisition to
housing presale is 9.84 months and 20.01 months from land acquisition to
construction completion in our samples. The cumulative distribution curve of
the probability of survival is shown in Fig. 3.
Uncertainty We estimate market uncertainty using housing price volatility, which has
been commonly used in the literature (Cunningham 2006; Shi et al. 2015; Wang et al.
2015). A standard hedonic regression model in Eq. (3) is used to obtain the quality-
adjusted housing price indices, as the first step in calculating housing price volatility
(Cunningham 2006; Shi et al. 2015). To control for the significant heterogeneities
within a big city and ensure sufficient transactions to estimate the time-varying housing
price indices, we divide the city into sub-districts based on administrative divisions and
separately run Eq. (3) for each district.
Pi; j;t ¼ α j;t þ β j;t *X i þ ei; j;t ð3Þ
10
premiumi ¼ land acquasition costi=reserve land pricei −1
240 Z. Yang,S. Wu
0.70 1.20
0.60
1.00
0.50
0.40
0.80
0.30
0.20 0.60
0.10
0.40
0.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-0.10
0.20
-0.20
-0.30 0.00
Year
POr(left) POe(left) POl(right)
Fig. 2 Estimated prior outcomes
(a) Survival time from land acquisition to housing presale
(b) Survival time from land acquisition to construction completion
Fig. 3 The cumulative distribution curve of the probability of survival

Where Pi, j, t is the logged sale housing price for apartment i in district j at calendar
quarter t from the first quarter of 2006 to the second quarter of 2014 and Xi is a vector
of property attributes.
Then we calculate the quarterly quality-adjusted housing prices PAj;t for each district j
at calendar quarter t using PA ¼ α ^ j;t *X , where β
^ j;t þ β ^ j;t is estimated from Eq. (3) for
j;t
district j and X is a vector of the average property attributes in district j over the whole
sample period.
Given that housing price is predictable (Case and Shiller 1989), price volatility can
be measured as the gap between the forecast and real market prices (Shi et al. 2015).
Thus, we adopt a method following Cunningham (2006) to derive housing market
uncertainty based on housing price volatility, but we apply a more complex method by
creating forecasting estimates for the city and district levels.
PAj;t ¼ α1 þ β1 *PAj;t−m þ e j;t ð4Þ
PAc;t ¼ α2 þ β2 *PAc;t−n þ ec;t ð5Þ
Where PAj;t is the quality-adjusted housing price of district j at calendar quarter t, and
PAc;t denotes the housing price indices of the whole city at quarter t. The estimates of
uncertainty, ^σ2j;t and ^σ2c;t , are then calculated as in Eqs. (6) and (7), respectively.
2 ,
f j;t−k − f j;t−k
σ
^2j;t ¼ ∑m
k¼1 ð6Þ
m
2 ,
f c;t−s − f c;t−s
^2c;t ¼ ∑ns¼1
σ ð7Þ
n
Wherefj, t and fc, t are the relative measures of forecasting error ê j;t and êc;t ; f j;t ¼ m1 *
ê j;t 1* n êc;t
∑mk¼1 f j;t−k , f j;t ¼ =PAj;t and f c;t ¼ n ∑s¼1 f c;t−s , f c;t ¼ =PAc;t .
The lags vary considerably in the literature. For example, Cunningham (2006)
estimates the four-quarter-ahead housing price as a function of the current housing
price at the district level (n = 4), Wang et al. (2015) define the housing price forecast
process in Hangzhou based on a 3-month lag (m = 3) and Shi et al. (2015) hold that the
current housing price is the best estimate of the two-quarter-ahead forecast housing
price (m = 2). As such, we estimate the city-level quality-adjusted housing price indices
and housing price uncertainty, as well as the district level quality-adjusted housing
prices and housing price uncertainty using alternative lags. We plot the estimated
uncertainties in Fig. 4 and Fig. 5, the graphs for the quality-adjusted housing price
indices are also is available on request.
We also include land and project characteristics variables, developers’ in-
formation variables and economic variables to control for the effects of land
characteristics, developers’ financial ability (Wang 1999; Wang et al. 2015) and
information asymmetry (Childs et al. 2002) and market situations, respectively,
on the timing of development. Considering the potential role of developers’
242 Z. Yang,S. Wu
0.18
0.16
0.14
0.12
Uncertainty
0.1
0.08
0.06
0.04
0.02
0
Quarter
uncertainty_city1 uncertainty_city2 uncertainty_city3

Fig. 4 Estimated housing price uncertainty at the city level. Note: Uncertainty_city1 is calculated based on
lags 4, Uncertainty_city2 is calculated based on lags 3 and Uncertainty_city3 is calculated based on lags 2.
The real price indices are the China Quality-Controlled Housing Price Index (CQCHPI, Zheng et al. 2014;
Guo et al. 2014)
market expectations, land and project characteristics variables such as land

acquisition cost and developers’ information variables, are introduced to exclude
the effects of developers’ specific market expectations on their development
behavior. Furthermore, economic variables, such as the monthly change rate of
market housing prices and the monthly total sale area of commercial housing,
are introduced to exclude the effects of developers’ general market expectations
on their development behavior. The descriptive statistics of all of variables are
shown in Table 2.
Empirical Results
The accelerated failure time (AFT) model with log-normal distribution, which is
better for small samples (Cox and Oakes 1984; Efron 1977; Oakes 1977), is
used for the empirical tests of timing of land development. It is also the best fit
for failure time distribution compared to the exponential and Weibull distribu-
tions. We also use the survival model with Weibull distributions as the robust-
ness check.
Starting from the basic real option theory, we first investigate the correlation
between timing of land development and market uncertainty as a benchmark.
We find from the results shown in Table 3 that city-level market uncertainty
has significantly negative effects on the hazard rate of both presale (Column 1)
and construction completion (Column 5), and has significant positive effects on
the survival time before both presale (Column 2) and construction completion
(Column 6). District-level market uncertainty has the same effects on land
development, but the effects are not as significant as those of city-level
uncertainty (Columns 3, 4, 7 and 8). These results are supported by the real
option theory. According to the standard real option model, developers invest
time to gain new information to reduce uncertainty, which raises the value of
(a) Unceratinty_dis1
1.6
1.4
1.2
Uncertainty
1
0.8
0.6
0.4
0.2
0
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
Quarter
District 1 District 2 District 3

(b) Unceratinty_dis2
3
2.5
2
Uncertainty
1.5
0.5
0
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
Quarter

(c) Unceratinty_dis3
2.5
1.5
Uncertainty
0.5
0
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
Quarter
Fig. 5 Estimated housing price uncertainty at the district level. Note: District 1 includes Xicheng, Dongcheng
and Shijingshan; District 2 includes Haidian; District 3 includes Chaoyang; District 4 includes Fengtai; District
5 includes Daxing, Changping, Tongzhou and Shunyi; and District 6 includes Yanqing, Miyun, Mentougou,
Fangshan, Huairou and Pinggu. Uncertainty_dis1 is calculated based on lags 4, Uncertainty_dis2 is calculated
based on lags 3 and Uncertainty_dis3 is calculated based on lags 2. The data are from the China Real Estate
Information Corporation (CRIC)
investment delay. In general, a more highly volatile market leads to a developer

waiting longer to invest to gain higher option value (Capozza and Li 2002).
The other control variables in Table 3 also show expected signs. For example, for a
land parcel with affordable housing built on it, the timing of land development is
244 Z. Yang,S. Wu
Table 2 Descriptive statistics of variables used in this study
Var. Description Obs. Mean S.D. Min. Max.
Prior outcomes
POL Prior outcome based on land leasing 581 0.70 0.46 0 1
method.
POR Prior outcome based on reserved 484 0.34 0.40 0 2.79
land price.
POE Prior outcome based on evaluated 542 -0.03 0.50 -1.94 1.53
land price.
Uncertainty
Uncertainty_city City-level uncertainty, based on lag 4 394 0.08 0.04 0.03 0.16
Uncertainty_dis District-level uncertainty, based on 357 0.21 0.33 0.00 1.50
lag 4
Timing of land development
TLD1 Duration from land acquisition to 581 9.84 5.13 0.20 25.03
housing presale (months).
TLD2 Duration from land acquisition to 581 20.01 11.63 2.22 70.53
construction completion
(months).
Land and project characteristics
Area Logged land area (104*m2) 581 1.80 0.95 -1.76 4.16
Condition Land development condition 580 4.97 1.88 0 8
D_tam Logged distance from Tiananmen 581 3.13 0.60 0.68 4.71
(km)
D_shopping Logged distance from the nearest 581 0.24 0.94 -2.62 2.96
shopping center (km)
Price Logged total land price (104*yuan) 581 10.93 1.44 6.32 13.67
Affordable =1 if affordable commercial housing, 581 0.19 0.39 0 1
=0 otherwise
Far Floor to area ratio 581 2.13 0.79 0.31 6.50
Year The year the land is transacted 581 2010 3.08 2003 2015
Developer characteristics
Listed =1 if the developer is a listed 581 0.56 0.50 0 1
enterprise, =0 otherwise
Combined =1 if the developer is a combined 581 0.27 0.45 0 1
enterprise, =0 otherwise
Lsoe =1 if the developer is a local 581 0.42 0.49 0 1
state-owned enterprise, =0
otherwise
Csoe =1 if the developer is a central 581 0.15 0.36 0 1
state-owned enterprise, =0
otherwise
Other economic variables
Cost The logged average construction 581 7.73 0.08 7.48 7.85
cost in Beijing as the development
cost (yuan/m2)
M2 The monthly M2 change rate (%) 581 0.73 4.87 -14.00 21.00
I 581 1.91 0.41 1.42 2.89
Table 2 (continued)
Var. Description Obs. Mean S.D. Min. Max.
The monthly 3-month deposit

interest rate as the risk-free
interest rate (%)
Price change The monthly change rate of Beijing 581 -1.15 2.96 -6.20 5.89
housing prices as the housing
price change rate (%)
Sale area The logged monthly total sale area of 581 6.34 1.01 3.89 7.95
commercial housing in Beijing
(104*m2)
The land and project characteristics are collected from the Beijing Municipal Bureau of Land and Resources;
the developers’ information is manually gathered; the monthly 3-month deposit interest rate and monthly
change rate of M2 are gathered from the People’s Bank of China; the monthly total sale area of commercial
housing in Beijing is from the China Macroeconomic Information Network; the monthly change in Beijing
housing prices is from the China Real Estate Index System; and the average construction cost in Beijing is
from the National Bureau of Statistics of the People’s Republic of China. We drop the 5% sample with
extremely large land development timing from our empirical regressions.
significantly shortened, which is supported by the statements in Section 3 that afford-

able housing must be sold before commercial housing in China.
We then add the POs in the land acquisition stage into the models. Devel-
oping raw land into a completed structure is a multistage process requiring
sequential decisions (Somerville 2001), such as land acquisition, land develop-
ment and housing (pre-) selling decisions. The outcome of land acquisition, as
the first outcome preceding a sequence of choices, should theoretically influ-
ence developers’ behavior in subsequent stages of land development. Devel-
opers’ behavior is expected to be more sensitive to the high land costs, as they
cannot readily pass short-run fluctuations in land costs on to home buyers and
land costs may directly affect their bottom-line (Somerville 1996). That is
especially true in China, where land costs are extremely high and contribute
to as much as 50% of the direct cost of real estate development (Yan and
Cheng 2008).
We investigate the correlations between the timing from land acquisition to
presale and developers’ POs (Table 4) and the timing from land acquisition to
construction completion and developers’ POs (Table 5). First, we find that after
controlling all other variables, such as market uncertainty, developer’s specific
POs in the land acquisition stage still have significant effects on their land
development timing. Specifically, POL has a significant negative effect on the
presale hazard rate (Table 4, Columns 1 and 3) and a significant positive effect
on the survival time before presale (Table 4, Columns 2 and 4). However, POE
has a significant negative effect on the hazard rate of construction completion
(Table 5, Columns 1 and 3) and a significant positive effect on the survival
time before construction completion (Table 5, Columns 2 and 4). Results in
Table 4 and 5 suggests that developers accelerate land development after prior
gains from land acquisition, and delay land development after prior losses from
land acquisition.
Table 3 The relationship between timing of land development and uncertainty
246
Time to presale Time to construction completion
(1) (2) (3) (4) (5) (6) (7) (8)

Weibull Log-normal Weibull Log-normal Weibull Log-normal Weibull Log-normal
Uncertainty_city -3.42*** 1.47* -9.91** 4.40***

(-5.04) (1.75) (-2.30) (2.92)
Uncertainty_dis -0.01 0.02 -0.21 0.21*
(-0.13) (0.63) (-1.03) (1.77)
Area 0.25*** -0.19*** 0.25*** -0.18*** -0.38*** 0.08 -0.32* 0.10
(3.58) (-8.00) (3.98) (-9.29) (-5.07) (1.63) (-1.91) (1.53)
Far 0.042 0.01 0.032 0.02 -0.14** 0.04 -0.09 0.05
(0.32) (0.16) (0.27) (0.33) (-2.35) (0.92) (-1.04) (1.34)
Condition 0.04 -0.0003 0.02 0.01 -0.03 0.01 -0.03* 0.02
(0.87) (-0.02) (0.42) (0.32) (-1.41) (0.74) (-1.76) (1.26)
D_tam -0.12 0.16*** -0.16 0.18*** 0.21 -0.02 0.19 -0.05
(-0.76) (3.57) (-0.91) (3.83) (1.01) (-0.30) (0.64) (-0.47)
D_shopping 0.02 -0.01 0.05 -0.03 0.04 -0.01 0.05 -0.03
(0.31) (-0.63) (0.65) (-1.00) (0.45) (-0.16) (0.62) (-0.74)
Price -0.23** 0.15*** -0.22* 0.14*** 0.20 0.01 0.16 -0.01
(-2.41) (3.69) (-1.78) (3.20) (1.49) (0.14) (0.63) (-0.15)
Affordable 0.93*** -0.40*** 0.86*** -0.38*** 0.90*** -0.31*** 0.83*** -0.33***
(4.64) (-8.24) (4.05) (-6.24) (4.43) (-5.20) (3.79) (-4.10)
Lsoe -0.37* 0.13 -0.38** 0.14 0.12 -0.04 0.07 -0.03
(-1.79) (1.52) (-2.12) (1.64) (0.70) (-0.55) (0.74) (-0.63)
Csoe 0.18 -0.01 0.11 0.02 0.21 -0.11 0.23** -0.08
(1.10) (-0.15) (0.77) (0.22) (1.23) (-1.26) (2.12) (-1.05)
Listed 0.34** -0.16** 0.38** -0.18*** 0.20** -0.05 0.23*** -0.06
Z. Yang,S. Wu
Table 3 (continued)
(1) (2) (3) (4) (5) (6) (7) (8)

(2.18) (-2.47) (2.37) (-2.60) (2.47) (-1.37) (2.71) (-1.24)

Combined 0.13 -0.05 0.10 -0.02 0.07 0.03 0.01 0.05
(0.90) (-0.65) (0.70) (-0.25) (0.46) (0.50) (0.07) (1.01)
Cost 0.07 0.84 1.53 0.17 11.67*** -3.46*** 13.12*** -4.61***
(0.05) (0.94) (1.03) (0.21) (3.29) (-3.07) (3.59) (-2.58)
Price change 0.03 -0.01 0.01 0.0005 0.03 -0.01 -0.00004 -0.002
(1.42) (-0.52) (0.36) (0.05) (0.84) (-0.52) (-0.00) (-0.10)
I -0.06 -0.05 -0.31 0.05 -0.55 0.15 -0.90 0.32
(-0.14) (-0.19) (-0.62) (0.19) (-0.94) (0.94) (-1.37) (1.31)
M2 0.01 -0.01 0.004 -0.01 0.005 -0.01 0.003 -0.003
Land acquisition outcome, developer risk attitude and land...
(0.65) (-1.12) (0.27) (-0.63) (0.30) (-0.90) (0.19) (-0.31)

Sale area -0.11 0.07 -0.09 0.06 -0.11 0.07 -0.11 0.05
(-1.53) (1.44) (-1.25) (1.28) (-0.85) (1.26) (-0.67) (0.54)
Constant Yes Yes Yes Yes Yes Yes Yes Yes
ln_p Constant Yes No Yes No Yes No Yes No
ln_sig Constant No Yes No Yes No Yes No Yes
Obs. 393 393 357 357 403 403 367 367
Log lik. -299.6 -316.1 -284.9 -301.6 -198.4 -225.3 -199.4 -230.4
This table presents the relationship between the timing of land development and uncertainty. The dependent variable is the presale hazard rate at time t for land i in the Weibull model for
Model 1 and 3, the hazard rate of construction completion at time t for land i in the Weibull model for Model 5 and 7, the survival time before presale for land i in the log-normal model
for Model 2 and 4, and the survival time before construction completion for land i in the log-normal model for Model 6 and8. We select the models based on the information criteria.
The variables of interest are the market uncertainty at the city and district levels calculated based on lag 4 (i.e., Uncertainty_city and Uncertainty_dis). The independent variables are
land and project characteristics, developer characteristics and other economic variables. *, ** and *** represent the 10%, 5% and 1% significance levels, respectively. T-statistics are
included in parentheses. Log lik. is the log pseudo likelihood. Standard errors are clustered by year.
247
248 Z. Yang,S. Wu
Comparing Table 4 and 5, we find that POL significantly affects the time
before presale but does not significantly affect the time before construction
completion, whereas PO E demonstrates the opposite results. This is an
interesting finding, as it implies that POLi has a short-term effect while POEi
has a relatively long-term effect on the decisions of developers on land devel-
opment timing. This is intuitive because the internal land value and the POEi are
estimated based on the competitive projects transacted after the land transaction,
which cannot be directly inferred by the developer11 at the time of land acqui-
sition. Therefore, it is assumed that developers can only roughly judge their prior
land acquisition outcomes according to land acquisition methods (i.e., POLi ) in
the short term, then make more accurate estimations of the internal land value
and the POEi according to the practical sales revenue during the long term.
Land acquisition outcome, risk attitude and land development timing
Testable hypotheses
A crucial question related to our finding is why there is such a correlation of land
acquisition loss and land development delay, and what the underlying mechanism is
behind this correlation.
Following the work of Thaler and Johnson (1990), it is commonly realized that prior
outcomes significantly influence investors’ risk attitudes in their subsequent decisions.
In general, people tend to be more risk seeking after a prior gain (Thaler and Johnson
1990) and more risk averse after a prior loss (Gärling and Romanus 1997; Linville and
Fischer 1991; Romanus et al. 1996, 1997). Thus, developers who have enjoyed gains in
land acquisition may be more risk seeking in land development, whereas developers
who have suffered loss in land acquisition would be more risk averse in land
development.
Then we check if the risk attitude changes can explain the relation of prior
outcomes and land development timing observed in Table 4 and 5, within the
real option framework. In the standard real option model, developers’ option
value in land development is the discounted expected value of the option
payoff under the risk-neutral probability distribution (Jackwerth 2004), as
shown in Eq. (8).

V ðpt ÞSD ¼ E e−pT *pt : ð8Þ
Where V(pt)SD refers to the option value under the standard risk-neutral prob-
ability distribution; pt is housing price at time t, which fluctuates following a
geometric Brownian motion; T is the optimal investment time to maximize land
development revenues; and ρ is a constant scalar. Under this option model, land
11
As the data in this study is from 2003 to May of 2015, for the vast majority of our samples, competitive
projects transacted between 2013 and 2015 are transacted after the corresponding land transaction.
Table 4 The correlation between timing from land acquisition to presale and prior outcomes
POL POE
(1) (2) (3) (4) (5) (6) (7) (8)

POL/POE -0.260* 0.12*** -0.27** 0.12*** -0.01 -0.003 -0.06 0.02

(-1.82) (2.90) (-2.01) (2.89) (-0.06) (-0.02) (-0.29) (0.16)
Uncertainty_city -3.50*** 1.48* -3.56*** 1.59
(-4.73) (1.73) (-4.64) (1.62)
Uncertainty_dis -0.01 0.01 0.06 0.004
(-0.09) (0.39) (1.14) (0.10)
Area 0.21*** -0.17*** 0.22*** -0.17*** 0.23* -0.19** 0.21 -0.17*
(4.54) (-9.95) (3.55) (-12.20) (1.83) (-2.37) (1.39) (-1.90)
Far 0.01 0.02 0.003 0.03 0.04 0.01 0.02 0.03
(0.11) (0.42) (0.03) (0.63) (0.32) (0.32) (0.13) (0.71)
Condition 0.05 -0.002 0.03 0.004 0.02 0.003 0.01 0.01

(1.03) (-0.15) (0.59) (0.22) (0.58) (0.15) (0.13) (0.45)
D_tam -0.10 0.16*** -0.15 0.18*** -0.07 0.16** -0.11 0.16**
(-0.64) (3.52) (-0.81) (4.00) (-0.40) (2.04) (-0.59) (2.28)
D_shopping 0.02 -0.01 0.05 -0.03 0.05 -0.03** 0.07 -0.05**
(0.31) (-0.67) (0.68) (-1.05) (0.82) (-2.00) (1.16) (-2.21)
Price -0.22** 0.15*** -0.22* 0.14*** -0.19 0.14 -0.15 0.11
(-2.26) (3.63) (-1.67) (3.16) (-1.11) (1.46) (-0.77) (1.08)
Affordable 0.91*** -0.40*** 0.84*** -0.37*** 0.90*** -0.39*** 0.82*** -0.36***
(4.60) (-7.85) (4.10) (-6.25) (4.51) (-6.15) (3.95) (-4.82)
Lsoe -0.39* 0.15 -0.41** 0.15* -0.30 0.11 -0.32 0.12
(-1.84) (1.64) (-2.22) (1.80) (-1.19) (0.98) (-1.39) (1.16)
Csoe 0.16 -0.01 0.11 0.02 0.22 -0.03 0.15 0.004
(1.13) (-0.16) (0.77) (0.24) (1.26) (-0.30) (0.92) (0.05)
249
Table 4 (continued)
250
POL POE
(1) (2) (3) (4) (5) (6) (7) (8)

Listed 0.35** -0.16*** 0.39** -0.18*** 0.28 -0.14* 0.33* -0.15**

(2.05) (-2.59) (2.22) (-2.72) (1.62) (-1.94) (1.71) (-1.97)
Combined 0.11 -0.04 0.07 -0.01 0.12 -0.03 0.06 0.002
(0.69) (-0.55) (0.47) (-0.15) (0.76) (-0.45) (0.47) (0.04)
Cost 0.60 0.61 2.07 -0.07 0.03 1.02 1.47 0.44
(0.43) (0.65) (1.59) (-0.09) (0.03) (1.36) (0.99) (0.64)
Price change 0.05** -0.02 0.03 -0.01 0.02 -0.01 -0.0003 0.002
(2.10) (-1.57) (1.09) (-1.10) (1.13) (-0.53) (-0.01) (0.21)
I 0.05 -0.09 -0.2 0.002 -0.09 -0.07 -0.33 0.01
(0.13) (-0.39) (-0.38) (0.01) (-0.22) (-0.32) (-0.63) (0.03)
M2 0.01 -0.01 0.005 -0.01 0.01 -0.01 0.002 -0.01
(0.93) (-1.23) (0.43) (-0.70) (0.50) (-1.10) (0.12) (-0.60)
Sale area -0.11 0.06 -0.09 0.06 -0.10 0.07 -0.08 0.06
(-1.41) (1.25) (-1.13) (1.07) (-1.12) (1.18) (-0.86) (0.98)
Observations 393 393 357 357 373 373 338 338
Log lik. -298.2 -315.1 -283.5 -300.5 -286.6 -302.4 -272.3 -288.2
This table presents the relationship between timing from land acquisition to presale and prior outcomes. The dependent variable is the presale hazard rate at time t for land i in the
Weibull model and the survival time before presale for land i in the log-normal model. We select the models based on the information criteria. The variables of interest are the prior land
acquisition outcomes (i.e., POL and POE ). The independent variables are uncertainty, land and project characteristics, developer characteristics and other economic variables. *, ** and
*** represent the 10%, 5% and 1% significance levels, respectively. T-statistics are included in parentheses. Log lik. is the log pseudo likelihood. Standard errors are clustered by year.
Z. Yang,S. Wu
Table 5 The correlation between timing from land acquisition to construction completion and prior outcomes
POL POE
(1) (2) (3) (4) (5) (6) (7) (8)

POL/POE -0.052 0.02 -0.09* 0.01 -0.53* 0.15** -0.68*** 0.23***

(-0.58) (0.46) (-1.74) (0.34) (-1.96) (2.52) (-3.60) (4.75)
Uncertainty_city -9.89** 4.40*** -8.95* 3.97**
(-2.28) (2.92) (-1.91) (2.49)
Uncertainty_dis -0.21 0.21* -0.19 0.18
(-1.03) (1.79) (-0.90) (1.45)
Area -0.39*** 0.08* -0.33* 0.10 -0.81*** 0.21** -0.87*** 0.29***
(-4.78) (1.69) (-1.88) (1.51) (-3.61) (2.72) (-4.51) (4.03)
Far -0.14** 0.04 -0.10 0.05 -0.32*** 0.09* -0.34*** 0.13***
(-2.34) (1.02) (-1.11) (1.40) (-2.65) (1.93) (-2.65) (3.14)

Condition -0.03 0.01 -0.03* 0.02 -0.02 0.01 -0.02 0.01
(-1.35) (0.70) (-1.66) (1.26) (-0.92) (0.61) (-0.97) (0.84)
D_tam 0.21 -0.02 0.19 -0.04 0.46** -0.09 0.50* -0.14
(1.00) (-0.31) (0.63) (-0.46) (2.11) (-1.13) (1.71) (-1.29)
D_shopping 0.043 -0.01 0.05 -0.03 0.04 -0.02 0.05 -0.04
(0.46) (-0.16) (0.67) (-0.74) (0.46) (-0.47) (0.60) (-0.94)
Price 0.19 0.01 0.16 -0.01 0.58*** -0.11** 0.66** -0.17*
(1.49) (0.14) (0.62) (-0.15) (3.03) (-2.02) (2.52) (-1.99)
Affordable 0.90** -0.31*** 0.83** -0.33*** 0.93** -0.31*** 0.83*** -0.32***
(4.41) (-5.14) (3.80) (-4.10) (4.77) (-6.41) (3.96) (-4.51)
Lsoe 0.11 -0.03 0.07 -0.03 0.21 -0.06 0.17 -0.05
251
Table 5 (continued)
252
POL POE
(1) (2) (3) (4) (5) (6) (7) (8)

(0.68) (-0.51) (0.66) (-0.59) (1.03) (-0.88) (1.35) (-1.03)

Csoe 0.21 -0.11 0.23** -0.08 0.27 -0.12 0.28** -0.09
(1.22) (-1.25) (2.04) (-1.04) (1.44) (-1.34) (2.39) (-1.11)
Listed 0.20** -0.06 0.24*** -0.06 0.22** -0.06* 0.23*** -0.07
(2.39) (-1.33) (2.65) (-1.23) (3.28) (-1.86) (3.13) (-1.43)
Combined 0.06 0.03 0.001 0.05 0.0713 0.0343 0.0167 0.0600
(0.43) (0.51) (0.01) (1.00) (0.46) (0.54) (0.12) (0.99)
Cost 11.81*** -3.50*** 13.32*** -4.63*** 11.43*** -3.09*** 12.61*** -4.10*
(3.48) (-3.30) (3.75) (-2.64) (3.33) (-2.89) (3.57) (-2.39)
Price change 0.04 -0.01 0.01 -0.003 0.04 -0.01 0.02 -0.01
(0.90) (-0.60) (0.17) (-0.13) (1.36) (-0.81) (0.45) (-0.35)
I -0.53 0.14 -0.89 0.31 -0.33 0.04 -0.57 0.16
(-0.90) (0.82) (-1.30) (1.24) (-0.71) (0.30) (-1.02) (0.74)
M2 0.004 -0.01 0.003 -0.003 -0.002 -0.004 -0.01 -0.001
(0.29) (-0.89) (0.15) (-0.31) (-0.12) (-0.80) (-0.46) (-0.18)
Sale area -0.10 0.07 -0.10 0.05 -0.06 0.06 -0.04 0.03
(-0.82) (1.21) (-0.65) (0.53) (-0.50) (1.04) (-0.33) (0.31)
Observations 403 403 367 367 383 383 348 348
Z. Yang,S. Wu
Table 5 (continued)
POL POE
(1) (2) (3) (4) (5) (6) (7) (8)

Log lik. -198.4 -225.3 -199.2 -230.4 -179.0 -206.5 -178.4 -209.5
This table presents the relationship between timing from land acquisition to construction completion and prior outcomes. The dependent variable is the hazard rate of construction
completion at time t for land i in the Weibull model and the survival time before construction completion for land i in the log-normal model. We select the models based on the
information criteria. The variables of interest are the prior land acquisition outcomes (i.e., POL and POE ). The independent variables are uncertainty, land and project characteristics,
developer characteristics and other economic variables. *, ** and *** represent the 10%, 5% and 1% significance levels, respectively. T-statistics are included in parentheses. Log lik. is
the log pseudo likelihood. Standard errors are clustered by year.
253
254 Z. Yang,S. Wu
developers are assumed to be risk neutral and can diversify all risks when they
make irreversible land development decisions. As we know from the above
discussion, this assumption violates the nature of the real estate market, as
market incompleteness and developers’ behavioral factors should be incorporat-
ed into the model. Thus, based on prospect theory (Kahneman and Tversky
1979), the option model can be developed into Eq. (9).

V ðpt ÞPT ¼ E e−pT *V ðpt Þ : ð9Þ
Where V(pt)PT refers to the option value under the prospect theory’s framework, V(pt)
refers to investors’ value function in Eq. (10)12, T is the optimal investment time to
maximize land development revenues and ρ is a constant scalar
∞ 0
V ðpt Þ ¼ ∫ 0 vþ ðpt Þdwþ ðpt Þ þ ∫ −∞ v− ðpt Þdw− ðpt Þ ð10Þ
(
vþ ðpt Þ ¼ ðpt −rÞγ ðÞ ; pt > r
v ð pt Þ ¼ ;0 < γ < 1 ð11Þ
v− ðpt Þ ¼ −αðr−pt Þγ ðÞ ; pt < r
Where v(pt) is the separated value function, w(pt) 13 is the weighting function, r is the
reference value and α is the loss aversion degree. In this function, the investors’ risk
attitude parameter, γ(·), is an essential part of the value function, which in turn becomes
a determinant of the optimal solution. Therefore, investors’ risk attitudes γ influence
option decisions in the condition where market is incomplete and investors have
prospect theory preference.
Moreover, it has been found that when risk aversion increases,developers
have a stronger incentive to delay land development (Chronopoulos et al. 2011;
Hugonnier and Morellec 2007; Versluis et al. 2010). It is thought that unde-
veloped land can be used as collateral for developers to obtain a mortgage loan
to invest in another risk-free asset. Therefore, land development is likely to
means to transform a relatively safe asset into a risky one with uncertain cash
flow. With growing risk aversion, the marginal cost of waiting (i.e., the
opportunity cost of forgone cash flows discounted appropriately, which consists
entirely of risk) is affected more by risk aversion and decreases relatively more
than the marginal benefit (Chronopoulos et al. 2011). The payoff of waiting
increases and land development is postponed due to developers’ increased risk
aversion, but it is accelerated by developers’ increased risk seeking.
12
We apply the version of the value function based on the cumulative prospect theory, following Tversky and
Kahneman
8
(1992).
>
> þ Pðpt Þφ
< w ðpt Þ ¼
> 1=
13 ½Pðpt Þφ þ ð1−Pðpt ÞÞφ φ
wðpt Þ ¼ , where P(·) is the objective probability.
>
> − Pðpt Þφ
>
: w ðpt Þ ¼ 1=
½Pðpt Þφ þ ð1−Pðpt ÞÞφ φ
The theories related to land acquisition losses, increasing risk aversion and land
development delay are consistent with the empirical results in Table 4 and Table 5.
Therefore, we hypothesize that in the uncertain market, developers’ risk attitude change
might be an important mechanism to understand the impact of land development
outcomes on the timing of land development.
More evidences are need to support the above hypothesis. First we consider the
asymmetry. After an initial gain, people have positive moods that cushion their
subsequent losses, making them less painful (Thaler and Johnson 1990). It is
found that after a gain, a loss that is smaller than the original gain can be
integrated with the prior gain and can mitigate the influence of loss aversion
and facilitate risk seeking, known as the Bhouse money effect^ (Thaler and
Johnson 1990). On the contrary, after a prior loss, risk aversion might be caused
to increase as a result of negative mood (Gärling and Romanus 1997; Linville and
Fischer 1991). However, prior loss does not always increase risk aversion in the
sequential choice. According to the Bbreak-even effect,^ a subsequent choice that
is expected to be profitable and offer an opportunity to break even is acceptable
(Thaler and Johnson 1990). The Brenewable resources effect^ also suggests that
investors are particularly vulnerable and sensitive to continuously losses after
prior losses (Linville and Fischer 1991). This implies that a prior loss would only
significantly increase risk aversion if investors face expected losses in subsequent
choices, but would not if investors face expected gains in subsequent choices.
Given such different influencing mechanisms, we expect the effects of prior gains
and losses on developers’ risk attitudes to be asymmetric, as follows:
Δγ ¼ f ðPGÞ*I ðPG≠0Þ þ g ðPLÞ*I ðPL≠0Þ ð12Þ
Where Δγ refers to changes in investors’ risk attitudes, PG is prior gain and PL is

prior loss. I(·) is an indicative function and f(·) ≠ g(·).
Specific to the emerging Chinese land market, especially the Beijing land market,
land development as the subsequent choice is almost always profitable. According to
the China Quality-Controlled Housing Price Index (CQCHPI), housing prices in
Beijing increased by 380% from the first quarter in 2006 to the fourth quarter in
2015 and increased annually by 17.5%. Thus, profitable land development in the
emerging Chinese market is expected to weaken the risk aversion caused by a prior
loss. The magnitude of a prior gain’s effect on a developer’s risk attitude would be
larger than that of a prior loss’s effect on a developer’s risk attitude. Thus, if
developers’ risk attitude change is the mechanism from land acquisition outcomes
to land development timing, the effects on the timing of land development relevant
to prior gains and losses should be asymmetric.
Hypothesis 1 (Asymmetry). The effects of POs on the timing of land development

are more significant and larger in magnitude for prior gains.
If the risk attitude mechanism makes sense, we further expect heterogeneous

reactions to the same POs for developers with different levels of risk aversion.
Table 6 The asymmetrical correlation between timing from land acquisition to construction completion and prior outcomes
256
Model 1 Model 2
(1) (2) (3) (4) (5) (6) (7) (8)
PGE 0.91*** -0.29*** 1.03*** -0.41*** 0.77** -0.16 0.92** -0.27**

(3.14) (-3.42) (3.74) (-3.65) (2.18) (-1.47) (2.54) (-2.04)
PLE -0.08 0.02 -0.25* 0.07* 0.05 0.04 -0.03 0.07
(-0.29) (0.30) (-1.78) (1.66) (0.12) (0.29) (-0.12) (0.59)
Uncertainty -9.26** 3.95*** -10.65* -10.78** 4.67** 3.62***
_city (-2.12) (2.58) (-1.88) (-2.44) (2.15) (3.54)
Uncertainty -0.20 0.18 -0.20 -0.20 0.18** 0.12
_dis (-0.93) (1.49) (-1.29) (-0.35) (2.28) (0.67)
Area -0.84*** 0.23*** -0.89*** 0.31*** -0.10 -0.49 0.10 0.03 0.20 -0.92** -0.02 0.22*
(-3.85) (2.98) (-4.53) (4.02) (-0.09) (-0.97) (0.33) (0.19) (0.24) (-2.09) (-0.06) (1.70)
Far -0.31*** 0.09** -0.32** 0.13*** 0.13 -0.24 0.02 0.02 0.14 -0.37 0.02 0.10
(-2.66) (2.08) (-2.54) (3.40) (0.24) (-1.13) (0.17) (0.24) (0.45) (-1.60) (0.19) (1.57)
Condition -0.02 0.01 -0.02 0.01 -0.12 -0.06 0.02 0.02** -0.17 -0.03 0.05 0.02*
(-0.77) (0.68) (-0.89) (0.96) (-0.90) (-1.07) (0.44) (2.23) (-1.40) (-0.85) (1.00) (1.93)
D_tam 0.46** -0.10 0.50* -0.16 -0.56 0.60 0.14 -0.12 -0.91 0.88* 0.26 -0.27
(2.16) (-1.32) (1.68) (-1.37) (-0.67) (1.51) (0.59) (-0.98) (-1.41) (1.76) (1.03) (-1.47)
D_shopping 0.03 -0.02 0.05 -0.04 -0.02 0.07 -0.00 -0.03 0.03 0.07 -0.02 -0.05
(0.39) (-0.41) (0.56) (-0.89) (-0.35) (0.57) (-0.20) (-0.60) (0.58) (0.59) (-1.10) (-0.94)
Price 0.60*** -0.14** 0.67** -0.21** -0.42 0.39 0.09 -0.01 -0.73 0.86** 0.21 -0.21*
(3.12) (-2.30) (2.51) (-2.05) (-0.42) (1.01) (0.31) (-0.13) (-1.13) (2.16) (0.84) (-1.74)
Z. Yang,S. Wu
Table 6 (continued)
Model 1 Model 2
(1) (2) (3) (4) (5) (6) (7) (8)
Affordable 0.94*** -0.31*** 0.84*** -0.32*** 1.46** 1.12*** -0.40* -0.40*** 1.62** 0.87*** -0.53** -0.36***
(4.92) (-6.47) (4.19) (-4.63) (2.05) (4.42) (-1.74) (-5.18) (2.30) (5.05) (-2.07) (-4.44)
Lsoe 0.18 -0.06 0.15 -0.05 0.56* 0.16 -0.17 -0.05 0.70* -0.03 -0.30* 0.03
(0.94) (-0.82) (1.34) (-0.95) (1.67) (1.03) (-1.51) (-0.48) (1.77) (-0.18) (-1.94) (0.34)
Csoe 0.28 -0.13 0.30** -0.10 0.40 0.33 -0.23 -0.03 0.03 0.52** -0.11 -0.05
(1.48) (-1.42) (2.41) (-1.26) (0.71) (1.04) (-1.34) (-0.21) (0.06) (2.25) (-0.59) (-0.41)
Listed 0.23*** -0.07* 0.24*** -0.07 0.55** 0.12 -0.14* -0.04 0.60** 0.13 -0.14 -0.04
(3.14) (-1.88) (3.08) (-1.55) (2.51) (1.30) (-1.82) (-0.65) (2.46) (0.90) (-1.40) (-0.55)
Combined 0.08 0.03 0.02 0.05 0.50*** -0.06 -0.01 0.00 0.50*** -0.17 0.02 0.02
(0.57) (0.42) (0.17) (0.87) (4.13) (-0.26) (-0.14) (0.05) (2.84) (-0.64) (0.16) (0.32)
Cost 10.99*** -2.92*** 12.25*** -3.89** 10.59*** 11.00*** -2.86*** -2.26* 12.35*** 13.24*** -3.77* -3.30**
(3.24) (-2.81) (3.48) (-2.33) (3.46) (2.59) (-2.63) (-1.95) (3.64) (2.89) (-1.94) (-1.97)
Price change 0.04 -0.01 0.02 -0.01 0.05** 0.06 0.00 -0.03* 0.02 0.01 0.00 -0.02
(1.46) (-0.86) (0.43) (-0.35) (2.34) (1.11) (0.23) (-1.87) (0.64) (0.16) (0.13) (-0.89)
I -0.20 0.01 -0.47 0.11 -0.07 0.23 0.09 -0.32 -0.41 -0.30 0.21 -0.19
(-0.44) (0.04) (-0.83) (0.52) (-0.13) (0.29) (0.72) (-1.44) (-0.63) (-0.30) (0.97) (-0.53)
M2 -0.003 -0.005 -0.01 -0.001 -0.03 0.03 0.00 -0.01 -0.02 0.01 0.00 -0.00
(-0.19) (-0.71) (-0.60) (-0.11) (-1.15) (0.69) (0.24) (-0.95) (-0.93) (0.27) (0.26) (-0.39)
Sale area -0.06 0.06 -0.05 0.03 -0.31* -0.05 0.12* 0.02 -0.29 0.01 0.11 -0.02
(-0.52) (1.08) (-0.33) (0.31) (-1.75) (-0.32) (1.79) (0.53) (-1.53) (0.04) (1.45) (-0.36)
257
Table 6 (continued)
258
Model 1 Model 2
(1) (2) (3) (4) (5) (6) (7) (8)
Lambda 1.73 -0.70 -0.24 0.49** 2.83 0.29 -0.77 0.16

(0.82) (-0.82) (-0.36) (2.02) (1.52) (0.42) (-1.05) (0.69)
Constant Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
ln_p Yes No Yes No Yes Yes No No Yes Yes No No
Constant
ln_sig Constant No Yes No Yes No No Yes Yes No No Yes Yes
Observations 383 383 348 348 173 209 173 209 154 193 154 193
Log lik. -177.0 -205.01 -176.7 -207.6 -77.4 -80.1 -91.8 -93.0 -75.2 -84.6 -90.1 -99.0
This table presents the asymmetrical relationship between timing from land acquisition to construction completion and prior outcomes. According to the results of the basic correlation
between timing and prior outcomes, POE has a significant effect on the long-run decision of construction completion. As such, we investigate the asymmetry of the timing from land
acquisition to construction completion. The dependent variable is the hazard rate of construction completion at time t for land i in the Weibull model and the survival time before
construction completion for land i in the log-normal model. We select the models based on the information criteria. The variables of interest are the prior land acquisition outcomes (i.e.,
PGE and PLE ). The independent variables are uncertainty, land and project characteristics, developer characteristics and other economic variables. *, ** and *** represent the 10%, 5%
and 1% significance levels, respectively. T-statistics are included in parentheses. Log lik. is the log pseudo likelihood. Standard errors are clustered by year.
Z. Yang,S. Wu
Table 7 The heterogeneous effects of POE on the timing from land acquisition to construction completion
(1) (2) (3) (4) (5) (6) (7) (8)

Non-SOE Non-SOE SOE SOE Non-SOE Non-SOE SOE SOE
POE -0.06 0.07 0.24*** 0.32*** PGE -0.17** -0.37*** -0.29*** -0.42***
(-0.72) (0.65) (3.35) (5.13) (-2.47) (-3.25) (-2.60) (-3.29)
PLE -0.20** -0.11 0.18* 0.22***
(-2.07) (-0.82) (1.69) (3.38)
uncertainty 5.81*** 2.89** uncertainty 5.72*** 2.90**
_city (3.23) (2.07) _city (3.35) (2.13)
uncertainty 0.17* 0.09 uncertainty 0.18** 0.08
_dis (1.83) (0.65) _dis (2.17) (0.61)
Area 0.06 0.20* 0.29*** 0.36*** Area 0.11** 0.26*** 0.30*** 0.38***
(1.11) (1.95) (2.62) (3.81) (2.22) (2.59) (2.62) (3.75)
Far 0.06 0.14* 0.08 0.11** Far 0.08* 0.16** 0.07 0.11**
(1.35) (1.95) (1.53) (2.39) (1.67) (2.31) (1.54) (2.36)

Condition 0.02 0.01 -0.00 0.00 Condition 0.02 0.01 -0.00 0.01
(1.11) (0.46) (-0.21) (0.20) (1.03) (0.45) (-0.20) (0.23)
D_tam -0.02 -0.09 -0.18** -0.23*** D_tam -0.04 -0.12 -0.18** -0.24***
(-0.16) (-0.51) (-2.19) (-2.68) (-0.26) (-0.62) (-2.27) (-2.68)
D_shopping -0.03 -0.06 -0.01 -0.01 D_shopping -0.02 -0.05 -0.00 -0.01
(-0.41) (-0.89) (-0.14) (-0.30) (-0.34) (-0.80) (-0.12) (-0.28)
Price -0.00 -0.11 -0.15** -0.22** Price -0.05 -0.17 -0.16** -0.24**
(-0.08) (-1.02) (-2.17) (-2.53) (-1.15) (-1.57) (-2.21) (-2.48)
Affordable -0.24*** -0.23* -0.34*** -0.37*** Affordable -0.23** -0.22* -0.34*** -0.36***
(-2.70) (-1.93) (-7.20) (-8.04) (-2.44) (-1.81) (-7.07) (-8.57)
259
Table 7 (continued)
260
(1) (2) (3) (4) (5) (6) (7) (8)

Non-SOE Non-SOE SOE SOE Non-SOE Non-SOE SOE SOE
Listed -0.13 -0.17 -0.05 -0.01 Listed -0.13 -0.17 -0.05 -0.02
(-1.08) (-1.15) (-0.55) (-0.11) (-1.08) (-1.13) (-0.60) (-0.16)
Combined 0.13 0.20 -0.00 0.01 Combined 0.13 0.20 -0.01 0.01
(1.38) (1.58) (-0.08) (0.25) (1.39) (1.54) (-0.12) (0.17)
Cost -0.80 -3.33 -3.66*** -4.55*** Cost -0.60 -3.00 -3.60*** -4.44***
(-0.52) (-1.47) (-3.98) (-2.64) (-0.41) (-1.38) (-3.83) (-2.58)
Price change -0.01 0.00 -0.02 -0.01 Price change -0.01 0.01 -0.02 -0.01
(-0.63) (0.13) (-1.39) (-0.80) (-0.55) (0.18) (-1.47) (-0.81)
I -0.35 0.08 0.17* 0.25 I -0.38 0.03 0.15 0.22
(-1.04) (0.20) (1.68) (1.31) (-1.20) (0.07) (1.58) (1.13)
M2 -0.01 -0.02 0.00 0.01 M2 -0.01 -0.02 0.00 0.01
(-0.79) (-1.36) (0.11) (0.73) (-0.76) (-1.26) (0.11) (0.78)
Sale area 0.10** 0.08 0.03 -0.01 Sale area 0.10** 0.08 0.04 -0.00
(2.24) (1.08) (0.48) (-0.06) (2.14) (1.02) (0.51) (-0.04)
Constant Yes Yes Yes Yes Constant Yes Yes Yes Yes
ln_sig Constant Yes Yes Yes Yes ln_sig Constant No Yes No Yes
Obs. 140 135 242 212 Obs. 140 135 242 212
Log lik. -65.44 -76.92 -126.54 -121.86 Log lik. -64.39 -75.49 -126.36 -121.42
This table presents the relationship between timing from land acquisition to construction completion and prior outcomes for state-owned enterprises (SOEs) and non-SOEs. SOE=1
means the developer is a local SOE or a central SOE. All of the models are log-normal models. The dependent variable is the survival time before construction completion for land i. We
also run the Weibull model but do not report the results here for brevity. We select the models based on the information criteria. The variables of interest are the prior land acquisition
outcomes (i.e., POE or PGE and PLE ). The independent variables are uncertainty, land and project characteristics, developer characteristics and other economic variables. *, ** and ***
represent the 10%, 5% and 1% significance levels, respectively. T-statistics are included in parentheses. Log lik. is the log pseudolikelihood. Standard errors are clustered by year.
Z. Yang,S. Wu
Table 8 The correlation between timing and prior outcomes, robustness check of uncertainty
POL POE POL POE
(1) (2) (3) (4) (5) (6) (7) (8)
POL/POE -0.23* -0.22** -0.10 -0.07 0.07* 0.07* -0.69*** -0.63***

(-1.81) (-2.10) (-0.55) (-0.37) (1.77) (1.89) (-3.74) (-2.97)
uncertainty_city -1.79 -1.13 -1.50 -2.38
_robust (-0.76) (-0.52) (-0.34) (-0.58)
uncertainty_dis -0.10 -0.02 -0.13** -0.09*
_robust (-0.86) (-0.19) (-2.07) (-1.76)
Area 0.08 0.10 0.05 0.09 -0.50*** -0.47** -1.06*** -1.01***
(1.27) (1.45) (0.37) (0.54) (-2.88) (-2.46) (-5.73) (-5.68)
Far 0.04 0.04 0.03 0.03 -0.19** -0.18** -0.45*** -0.49***
(0.41) (0.35) (0.25) (0.26) (-2.30) (-1.98) (-4.19) (-4.58)

Condition 0.03 0.03 0.02 0.01 -0.05** -0.05** -0.03 -0.05*
(0.82) (0.69) (0.50) (0.28) (-2.49) (-2.21) (-1.29) (-1.73)
D_tam -0.05 -0.10 -0.002 -0.07 0.35 0.29 0.69*** 0.56**
(-0.32) (-0.67) (-0.01) (-0.41) (1.33) (1.16) (2.70) (2.22)
D_shopping 0.05 0.06 0.07 0.09 -0.02 0.002 0.0004 -0.01
(0.81) (0.93) (1.44) (1.53) (-0.27) (0.03) (0.01) (-0.08)
Price -0.13 -0.16 -0.05 -0.09 0.26 0.21 0.79*** 0.69***
(-1.25) (-1.54) (-0.31) (-0.50) (1.11) (0.84) (3.46) (2.98)
Affordable 0.87*** 0.76*** 0.87*** 0.77*** 0.77*** 0.67** 0.76*** 0.58***
(4.18) (3.62) (4.24) (3.71) (3.23) (2.95) (3.30) (2.80)
Lsoe -0.31 -0.33 -0.23 -0.24 0.15 0.12 0.21 0.26*
(-1.60) (-1.84) (-1.04) (-1.15) (1.06) (1.30) (1.19) (2.02)
Csoe 0.13 0.10 0.15 0.11 0.29*** 0.25*** 0.37** 0.42**
261
Table 8 (continued)
262
POL POE POL POE
(1) (2) (3) (4) (5) (6) (7) (8)
(0.88) (0.73) (0.92) (0.72) (2.86) (2.58) (2.83) (3.49)

Listed 0.27 0.29 0.23 0.24 0.16 0.15 0.16* 0.11
(1.96) (1.93) (1.59) (1.58) (1.59) (1.57) (1.67) (1.07)
Combined 0.09 0.06 0.11 0.06 0.06 0.02 0.06 0.02
(0.69) (0.43) (0.87) (0.53) (0.69) (0.19) (0.59) (0.19)
Cost 2.29** 2.81*** 1.30 1.76 13.84*** 13.61*** 13.42*** 13.89***
(2.18) (2.67) (1.53) (1.87) (4.02) (4.36) (4.01) (4.97)
Price change 0.01 0.01 -0.002 -0.004 -0.03 -0.03 -0.01 -0.04*
(0.43) (0.94) (-0.08) (-0.20) (-0.81) (-0.83) (-0.30) (-1.75)
I -0.49* -0.45** -0.42 -0.43 -1.20*** -1.16*** -0.91** -1.14**
(-1.73) (-2.34) (-1.27) (-1.61) (-3.42) (-2.78) (-2.86) (-3.25)
M2 0.03* 0.02** 0.02* 0.02 0.01 0.01 0.004 -0.01
(2.24) (2.11) (1.66) (1.41) (0.76) (0.56) (0.27) (-0.71)
Sale area -0.06 -0.06 -0.06 -0.06 -0.02 -0.02 0.02 0.10
(-0.91) (-1.07) (-0.88) (-0.95) (-0.15) (-0.16) (0.13) (0.87)
ln_p Constant Yes Yes Yes Yes Yes Yes Yes Yes
Observations 453 417 427 392 461 425 435 400
Log lik. -349.7 -332.6 -332.9 -316.4 -263.1 -247.9 -229.8 -226.8
This table presents the correlation between timing and prior outcomes, the robustness check of uncertainty. All models are Weibull models. The dependent variable is the hazard rate for
land i. We also run the log-normal model but do not report the results here for brevity. We select the models based on the information criteria. The variables of interest are the prior land
acquisition outcomes (i.e., POE and POL ). The independent variables are uncertainty, land and project characteristics, developer characteristics and other economic variables. *, ** and
*** represent the 10%, 5% and 1% significance levels, respectively. T-statistics are included in parentheses. Log lik. is the log pseudo likelihood. Standard errors are clustered by year.
Z. Yang,S. Wu
Table 9 The correlation between timing and prior outcomes, robustness check of uncertainty and prior
outcomes
(1) (2) (3) (4)
POR -0.13 -0.15 -0.44* -0.48**

(-0.59) (-0.68) (-1.95) (-1.97)
uncertainty_city_robust 0.68 -1.42
(0.48) (-0.33)
uncertainty_dis_robust -0.12 -0.24**
(-1.08) (-2.39)
Area 0.11 0.14 -0.76*** -0.72***
(0.76) (0.85) (-3.49) (-3.01)
Far 0.004 -0.003 -0.29** -0.28**
(0.03) (-0.02) (-2.43) (-2.38)
Condition 0.02 0.01 -0.04*** -0.04**
(0.38) (0.25) (-3.02) (-2.28)
D_tam -0.15 -0.18 0.52 0.48
(-0.74) (-0.98) (1.57) (1.52)
D_shopping 0.07 0.09 -0.02 0.002
(0.79) (0.97) (-0.32) (0.03)
Price -0.19 -0.23 0.46* 0.38
(-1.22) (-1.28) (1.80) (1.41)
Affordable 0.90*** 0.77** 0.76** 0.62**
(3.04) (2.57) (2.54) (2.10)
Lsoe -0.41 -0.47 0.04 -0.02
(-1.26) (-1.40) (0.18) (-0.09)
Csoe 0.04 -0.02 0.34** 0.29**
(0.15) (-0.08) (2.45) (2.03)
Listed 0.43* 0.47* 0.13 0.14
(1.83) (1.87) (1.28) (1.47)
Combined 0.13 0.10 0.06 0.03
(0.66) (0.52) (0.50) (0.25)
Cost 1.38 1.74 11.43*** 11.02***
(1.36) (1.29) (3.32) (3.29)
Price change 0.01 0.01 -0.02 -0.02
(0.23) (0.17) (-0.47) (-0.54)
I -0.29 -0.38 -0.99** -1.00**
(-0.67) (-0.86) (-2.56) (-2.40)
M2 0.02* 0.02 0.01 0.01
(1.93) (1.46) (0.69) (0.46)
Sale area -0.02 -0.01 -0.02 -0.01
(-0.28) (-0.09) (-0.11) (-0.09)
Constant Yes Yes Yes Yes
264 Z. Yang,S. Wu
Table 9 (continued)
(1) (2) (3) (4)
ln_p Constant Yes Yes Yes Yes

Observations 359 326 364 331
Log lik. -273.4 -257.4 -204.7 -189.9
This table presents the correlation between timing and prior outcomes, the robustness check of uncertainty and
prior outcomes. All of the models are Weibull models. The dependent variable is the hazard rate for land i. We
also run the log-normal model but do not report the results here for brevity. We select the models based on the
information criteria. The variables of interest are the prior land acquisition outcomes (i.e., POR ). The
independent variables are uncertainty, land and project characteristics, developer characteristics and other
economic variables.*, ** and *** represent the 10%, 5% and 1% significance levels, respectively. T-statistics
are included in parentheses. Log lik. is the log pseudo likelihood. Standard errors are clustered by year
More risk-averse developers would be more sensitive to prior losses and less
significant asymmetric effects between prior gains and losses would be expect-
ed for them.
Hypothesis 2 (Heterogeneity). The asymmetry of the effects of POs on the timing

of land development is less significant for more risk-averse developers.
Empirical results
We first investigate the symmetry of the correlation between POs and land
development timing. We define prior losses and prior gains based on the POE
according to Eqs. (13) and (14), respectively. We establish two models to test
the asymmetry:
(
POEi;t ; if POEi;t > 0
PLEi;t ¼ ð13Þ
0; if POEi;t < 0
(
0; if POEi;t > 0
PGEi;t ¼ ð14Þ
−POEi;t ; if POEi;t < 0
Where PLEi;t is prior losses, PGEi;t is prior gains and POEi;t is the PO based on
evaluated land price. For Model 1, we substitute both PLEi;t and PGEi;t instead of
the initial POEi;t into the model, with the full sample. For Model 2, we run a
grouping regression with the losses sample as one group and with the gains
sample as another group. We substitute PLEi;t to replace POEi;t in the losses group
and PGEi;t to replace POEi;t in the gains group. To eliminate the possible selection
bias in Model 2, we run a two-stage regression. In the first stage, we estimate
Table 10 The correlation between timing and prior outcomes, robustness check of firm fixed effects
POL POE POL POE
(1) (2) (3) (4) (5) (6) (7) (8)
POL/POE 0.16** 0.16** -0.11 -0.11 0.10 0.14** 0.14* 0.22***

(2.00) (2.30) (-1.11) (-1.46) (1.44) (2.08) (1.86) (2.76)
uncertainty_city 1.10 1.53 4.57*** 4.34***
_robust (1.28) (1.42) (5.15) (4.14)
uncertainty_dis -0.15* -0.13 0.30* 0.30
_robust (-1.75) (-1.39) (1.73) (1.62)
Area -0.18*** -0.11*** -0.27*** -0.20*** 0.09 0.15*** 0.17* 0.28***
(-3.65) (-2.71) (-4.58) (-3.18) (1.13) (3.00) (1.70) (2.78)
Far -0.03 -0.00 -0.08** -0.06* -0.04 -0.02 0.01 0.06
(-0.66) (-0.14) (-2.30) (-1.81) (-1.21) (-0.36) (0.12) (1.09)
Condition -0.01 0.01 -0.01 0.01 -0.00 0.01 -0.01 0.00
(-0.53) (0.52) (-0.50) (0.47) (-0.14) (0.40) (-0.24) (0.05)
D_tam 0.26*** 0.23*** 0.34*** 0.30*** 0.02 -0.10 -0.05 -0.20**
(4.16) (4.33) (3.45) (3.92) (0.40) (-1.56) (-0.81) (-2.07)
D_shopping -0.06*** -0.07*** -0.06** -0.06** -0.03 -0.04 -0.02 -0.02
(-2.72) (-3.14) (-2.10) (-2.44) (-1.27) (-1.30) (-0.79) (-0.61)
Price 0.18*** 0.14** 0.24*** 0.21** -0.02 -0.09 -0.12* -0.24**
(3.39) (2.22) (2.86) (2.34) (-0.53) (-1.18) (-1.77) (-2.10)
Affordable -0.29*** -0.31*** -0.29*** -0.32*** -0.28*** -0.34*** -0.27*** -0.32***
(-6.58) (-6.68) (-5.06) (-5.51) (-4.37) (-4.54) (-4.83) (-4.75)
Lsoe 0.14 0.07 0.09 0.04 -0.02 0.06 -0.04 -0.02
(1.13) (0.49) (0.82) (0.31) (-0.11) (0.23) (-0.23) (-0.06)
Csoe 0.07 0.01 0.02 -0.04 0.02 0.06 -0.02 -0.04
(0.34) (0.03) (0.08) (-0.19) (0.14) (0.25) (-0.10) (-0.18)
Listed 0.29 0.17 0.31 0.20 -0.06 -0.10 -0.05 -0.09
(1.48) (0.82) (1.51) (1.01) (-0.40) (-0.69) (-0.35) (-0.58)
Combined -0.07 -0.03 -0.04 0.01 0.11 0.19*** 0.11 0.20***
(-0.72) (-0.34) (-0.40) (0.14) (1.28) (3.15) (1.41) (3.36)
Cost 0.56 0.59 0.73 0.83* -4.01*** -4.41*** -3.37*** -3.66***
(0.60) (1.30) (0.80) (1.66) (-4.40) (-4.22) (-3.32) (-3.22)
Price change -0.01* -0.00 0.01* 0.01*** -0.03* -0.03* -0.02 -0.02
(-1.73) (-0.27) (1.81) (3.67) (-1.86) (-1.66) (-1.55) (-1.61)
I -0.15 -0.14 -0.07 -0.07 0.12 0.14 0.09 0.09
(-1.03) (-1.00) (-0.53) (-0.52) (0.69) (0.62) (0.63) (0.49)
M2 0.00 0.01 -0.00 0.00 -0.00 -0.00 -0.00 -0.01
(1.11) (0.98) (-0.16) (0.20) (-0.60) (-0.34) (-0.61) (-0.49)
Sale area -0.04 -0.06* -0.01 -0.03 0.01 -0.01 0.01 -0.02
(-1.07) (-1.86) (-0.26) (-0.98) (0.15) (-0.19) (0.11) (-0.26)
266 Z. Yang,S. Wu
Table 10 (continued)
POL POE POL POE
(1) (2) (3) (4) (5) (6) (7) (8)
Firm fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
ln_p Constant Yes Yes Yes Yes Yes Yes Yes Yes
Observations 392 356 372 337 402 366 382 347
Log lik. -182.78 -164.06 -179.45 -160.79 -103.56 -105.07 -101.57 -99.50
This table presents the correlation between timing and prior outcomes, the robustness check of uncertainty. All
models are log-normal model models. The dependent variable is the survival time for land i. We select the
models based on the information criteria. The variables of interest are the prior land acquisition outcomes (i.e.,
POE and POL ). The independent variables are uncertainty, land and project characteristics, developer
characteristics and other economic variables. Firm fixed are controlled. *, ** and *** represent the 10%,
5% and 1% significance levels, respectively. T-statistics are included in parentheses. Log lik. is the log pseudo
likelihood. Standard errors are clustered by year.
the Mill’s ratio (lambda14) from a Probit model based on the full sample. The Mill’s
ratio is a monotonically decreasing function of the probability that the PO is a gain or
loss. In the second stage, an AFT model with a log-normal distribution and a survival
model with Weibull distributions using the gain or loss sample are established.
The results are shown in Table 6. Models 1 and 2 support each other. Consistent with
the basic model, prior gains shorten the waiting time, whereas prior losses extend the
waiting time. However, asymmetry does exist as the magnitude and significance of the
prior gains’ positive effects are much bigger than those of the prior losses’ negative
effects. This indicates that developers accelerate land development because of gains in
the land acquisition stage but do not significantly delay land development because of
losses in the land acquisition stage. The asymmetry supports the fact that the effects of
POs on land development timing is likely the result of investors’ changing risk
attitudes, as the relationship between POs and developers’ risk attitudes is asymmetric.
To test the heterogeneity, we divide our developers into different groups: state-
owned enterprises (SOEs) versus non-SOEs and developers. It is often held that SOEs
are more risk averse than non-SOEs, as a result of the political orientation of managers
correlated with their financial conservatism (Converse 2006; Jost 2006). Hutton et al.
(2014) find that Republican corporate managers use lower levels of debt and pay higher
dividends in their corporate financing policies and that Republican-oriented firms
implement less risky and more profitable investments. Hong and Kostovetsky (2012)
also find that Democratic fund managers are less likely to invest in companies active in
the tobacco, guns and defense, and natural resources industries. Therefore, SOEs may
be more sensitive to prior losses than non-SOEs and the asymmetric effects of POs on
the timing of land development may be less significant for SOEs.
The results are shown in Table 7. We find significant heterogeneity between
developers, such that for non-SOEs the effects of POs on the timing of land
14
Lambda can be expressed as Lambdai ¼ ϕϕðð−X 2i =σ2 Þ
X 2i =σ2 Þ ; where ϕ demonstrates the normal density function.
development are much weaker and less significant than for SOEs. Specifically, prior
losses have significant positive effects on the timing of land development for SOEs, but
have non-significant effects on the timing of land development for non-SOEs. As
expected within the risk attitude change explanation, the asymmetric effects of POs
on land development timing are less significant for SOEs.
Robustness checks
We conduct several robustness checks to confirm our findings.
Robustness check for uncertainty
The empirical results may be sensitive to the calculation of uncertainty. Thus, the first
robustness check is based on an alternative estimations of uncertainty. We report results
with uncertainty estimated based on lags 4 at both the city and district levels as our
main results. We use the lags 2 and lags 3 as the alternative uncertainty measures in this
section to strengthen our estimation of uncertainty. Table 8 presents the robustness
check results with uncertainty estimated based on lags 2. We find a robust and negative
correlation between POs and hazard rates. Similarly, the correlations between POL-
presale hazard and POE-construction completion hazard are more significant. The
robustness check with lags 3 are also available on request, indicating similar results.
Robustness check for land acquisition outcomes
We also test the robustness based on alternative POs. Table 9 presents the results using
a different PO measurement strategy. We further apply PORi to check the robustness of
developers’ long-term behavior. We find a robust result consistent with that of POEi ,
which indicates that if land acquisition outcome requires developer’s long-term per-
ception, it has a significant impact on developer’s long-term decisions of land devel-
opment timing (Columns 3 and 4) but does not significantly impact on their short-term
decisions of land development timing (Columns 1 and 2).
Robustness check for firm fixed effects
Besides, we further control the fixed effects at developer firm level to exclude potential
omitted variable problem in our regression. Table 10 presents the results controlling
firm fixed effects. We find robustly significant POL-presale timing correlation and POE-
construction completion timing correlation.
Conclusions
We analyze the timing of land development in Beijing based on option theory and
behavioral economics in this paper. Based on the Blife-cycle^ data of land parcels from
the land acquisition stage and to the housing pre-sale stage, we measure the prior gains
268 Z. Yang,S. Wu
and losses in the land acquisition stage and investigate their impacts on the timing of
land development.
In general, we find that prior losses will cause developers to postpone land devel-
opment, while prior gains will encourage developers to accelerate land development.
These results provide a new behavioral perspective to understand the role of land
market. It highlights that land acquisition cost is important in dynamics of housing
price not only because it is an essential component of housing development costs
(Glaeser et al. 2008; Mayer and Somerville 2000), but also because its relations to
developer’s housing supply behavior.
By introducing behavioral economics into the real option model of land develop-
ment, we further assume the varying risk attitude of developers play a role in correla-
tion of the land acquisition outcomes and land development timing given the incom-
pleteness market and special developers’ behavior in Chinese market. Our empirical
results support this assumption that developers’ decisions of land development timing
are asymmetrically affected by prior gains and losses in the land acquisition stage, and
the asymmetry is less significant for the more risk-averse developers, such as SOEs. We
have not directly measured the risk attitude change in the paper because it is always
challenged by the data constraints and the heterogeneity of risk attitudes, although the
theoretical models are well developed. Limited empirical studies on risk attitude are
based on survey data (Dohmen et al. 2011; Rosen et al. 2003), which is unavailable for
our study. This will leave future research to explore a direct and more accurate method
of measuring risk attributes of developers. Our study does not attempt to declare the
varying risk attitude as the exclusive explanation for the results, but rather based on
empirical results to support the importance of considering developer’s behavioral and
psychological factors in an emerging market to extend the standard real option model.
It also provides a new perspective and evidences to highlight that developers’ risk
attitude is important for both real option research and corporate behavioral studies.
Acknowledgements This work was supported by National Natural Science Foundation of China
(71673154).
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Land Acquisition Outcome, Developer Risk Attitude and Land Development Timing

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J Real Estate Finan Econ (2019) 59:233–271

Land acquisition outcome, developer risk attitude

Zan Yang 1 & Shuping Wu 1

Published online: 6 June 2018

Background: Land acquisition and development in China

Land leasing methods

Housing presale policy

Land acquisition outcome and land development timing

Data and variables

Land acquisition outcomes We denote land acquisition outcomes for developers as

LV i ¼ HV i *ð1 þ gÞ*ð1−c−rÞ−C ð1Þ

Where wj is the spatiotemporal-weight of project j and HVj is the housing value of

Table 1 Definitions of prior outcomes

Prior Outcome Definition Value

Fig. 2 Estimated prior outcomes

(a) Survival time from land acquisition to housing presale

(b) Survival time from land acquisition to construction completion

Fig. 3 The cumulative distribution curve of the probability of survival

PAj;t ¼ α1 þ β1 *PAj;t−m þ e j;t ð4Þ

PAc;t ¼ α2 þ β2 *PAc;t−n þ ec;t ð5Þ

uncertainty_city1 uncertainty_city2 uncertainty_city3

market expectations, land and project characteristics variables such as land

District 1 District 2 District 3

District 1 District 2 District 3

investment delay. In general, a more highly volatile market leads to a developer

Table 2 Descriptive statistics of variables used in this study

Var. Description Obs. Mean S.D. Min. Max.

Var. Description Obs. Mean S.D. Min. Max.

The monthly 3-month deposit

significantly shortened, which is supported by the statements in Section 3 that afford-

Time to presale Time to construction completion

(1) (2) (3) (4) (5) (6) (7) (8)

Uncertainty_city -3.42*** 1.47* -9.91** 4.40***

Time to presale Time to construction completion

(1) (2) (3) (4) (5) (6) (7) (8)

(2.18) (-2.47) (2.37) (-2.60) (2.47) (-1.37) (2.71) (-1.24)

(0.65) (-1.12) (0.27) (-0.63) (0.30) (-0.90) (0.19) (-0.31)

Land acquisition outcome, risk attitude and land development timing

(1) (2) (3) (4) (5) (6) (7) (8)

POL/POE -0.260* 0.12*** -0.27** 0.12*** -0.01 -0.003 -0.06 0.02

Condition 0.05 -0.002 0.03 0.004 0.02 0.003 0.01 0.01

(1) (2) (3) (4) (5) (6) (7) (8)

Listed 0.35** -0.16*** 0.39** -0.18*** 0.28 -0.14* 0.33* -0.15**

(1) (2) (3) (4) (5) (6) (7) (8)

POL/POE -0.052 0.02 -0.09* 0.01 -0.53* 0.15** -0.68*** 0.23***

(-2.34) (1.02) (-1.11) (1.40) (-2.65) (1.93) (-2.65) (3.14)

(1) (2) (3) (4) (5) (6) (7) (8)

(0.68) (-0.51) (0.66) (-0.59) (1.03) (-0.88) (1.35) (-1.03)

(1) (2) (3) (4) (5) (6) (7) (8)

Δγ ¼ f ðPGÞ*I ðPG≠0Þ þ g ðPLÞ*I ðPL≠0Þ ð12Þ

Where Δγ refers to changes in investors’ risk attitudes, PG is prior gain and PL is

Hypothesis 1 (Asymmetry). The effects of POs on the timing of land development

If the risk attitude mechanism makes sense, we further expect heterogeneous

(1) (2) (3) (4) (5) (6) (7) (8)

Weibull Log-normal Weibull Log-normal Weibull Log-normal Weibull Log-normal

PGE 0.91*** -0.29*** 1.03*** -0.41*** 0.77** -0.16 0.92** -0.27**

(1) (2) (3) (4) (5) (6) (7) (8)

Weibull Log-normal Weibull Log-normal Weibull Log-normal Weibull Log-normal

(1) (2) (3) (4) (5) (6) (7) (8)

Weibull Log-normal Weibull Log-normal Weibull Log-normal Weibull Log-normal

Lambda 1.73 -0.70 -0.24 0.49** 2.83 0.29 -0.77 0.16

(1) (2) (3) (4) (5) (6) (7) (8)

LV i ¼ HV i ð1 þ gÞð1−c−rÞ−C ð1Þ

Uncertainty_city -3.42*** 1.47* -9.91 4.40*

POL/POE -0.260* 0.12* -0.27 0.12*** -0.01 -0.003 -0.06 0.02

Listed 0.35 -0.16* 0.39 -0.18* 0.28 -0.14* 0.33* -0.15**

POL/POE -0.052 0.02 -0.09* 0.01 -0.53* 0.15 -0.68* 0.23***

Δγ ¼ f ðPGÞI ðPG≠0Þ þ g ðPLÞI ðPL≠0Þ ð12Þ

PGE 0.91* -0.29* 1.03* -0.41* 0.77 -0.16 0.92 -0.27**

POL/POE -0.23* -0.22** -0.10 -0.07 0.07* 0.07* -0.69* -0.63*

POL/POE 0.16 0.16 -0.11 -0.11 0.10 0.14** 0.14* 0.22***