Ethical business modeling: developing a business model for the REIT industry towards an ethical structure

Lok, Alan Choon Tong (2021) Ethical business modeling: developing a business model for the REIT industry towards an ethical structure. DProf thesis, Middlesex University. [Thesis]

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Abstract

This research explores the development and validity of a questioning framework to better understand the Real Estate Investment Trust (REIT) business model. This framework will equip investors to navigate the rough seas of public equity investing. As an equity research analyst with two decades of experience, I aspire to enhance the level of investor education across Asia Pacific. With better investor education, the degree of information asymmetry between retail investors and financial institutions will reduce, leading to improvement in market integrity.

This research has been initiated in the context of taxpayers underwriting losses sustained by numerous too-big-to-fail companies with unsustainable business models partially due to unconstrained quantitative easing conducted by central bankers. Together with institutionally orchestrated pump-and-dump strategies, unsuspecting retail investors often find themselves at the receiving end during the eventual equity market debacles. Such unethical behaviors generate
substantial societal deadweight losses.

The overall methodology chosen is unusual for the sector but proved effective and reliable. This approach will be of interest to new researchers investigating issues in complex environments in which the relationship between the practitioner, practitioner experience and knowledge and technical knowledge is an intricately connected one. The methodology belongs to the interpretivist family of academically approved approaches.

A thorough review was undertaken of the relevant literature to generate a pilot list of questions. These questions were subject to initial inspection by a group of six industry experts for ease of comprehension. Their feedback was analysed and assimilated, and a revised set of questions was produced. Using the Delphi approach, these questions were presented to 16 industry practitioners to extract their professional insights. Subsequently, two focus study sessions were conducted with six retail investors in Hong Kong and Singapore to optimise the readability of the questioning framework.

Part of the questioning framework was then mapped onto a modified version of the Business Model Canvas conceptual framework. Finally, the framework was subject to three layers of validation. Firstly, the framework was used to review four in-sample case studies to ascertain whether all red flags could indeed be uncovered. Secondly, the same processes were repeated with three out-of-sample case studies. Thirdly, three industry practitioners were invited to apply the framework during real life investment analyses to test out whether it was indeed impactful.

Validation results at all three layers were affirmative. The concise version of the framework has had a positive reception as a questioning template among retail investors. As for professional investors, the detailed version of the framework has functioned efficiently as their fundamental analysis blueprint. To date, more than 2,000 retail investors and 2,400 professional stakeholders have benefited from the series of spin-off physical and virtual CE (Continuing Education) events associated with this research. The research was informed by and confirmed the key role of corporate governance relating to the ethics of practice as well as environmental, social and governance (ESG) elements.

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