Economic Analysis of Institutional Timberland Ownership in the United States

Abstract

The rise of institutional timberland ownership has led to a significant change in the structure and conduct of timber industry and forest management in the country. Understanding how industrial timberland sales affect the shareholder values of forest products firms, what factors influence landowners’ harvest and reforestation activities, and if different ownerships have an impact on timber supply and silvicultural practices, is critical for developing policies to improve forest sustainability. In the first study, we use an event study to investigate the impact of industrial timberland sales from 1997 to 2007 on shareholder values of major U.S. forest products firms. Cross-sectional regression analysis and the Capital Asset Pricing Model are used to examine factors influencing changes in market capitalization and systematic risk before and after the sales. The average cumulative abnormal rates of returns associated with timberland sales are found to be positive for all firms, and the resulting change in capitalization is related to these firms’ total asset and debt. The systematic risk for these firms changed little or increased slightly after the timberland sales. The second and third studies use USDA Forest Service Forest Inventory and Analysis (FIA) forest inventory data in nine southern states. In the second study, we use a two-period harvest choice model to explain the determinants of timber harvesting choices and estimate price elasticity of timber supply in response to market signal across different ownerships. We find that timber harvest choices are positively related to current timber value, stand volume, and net growth volume, and negatively associated with future timber value, and squared terms of stand volume and net growth volume across four ownership categories (i.e., forest industry, TIMOs, REITs, and NIPF landowners). Also, institutional timberland owners have smaller timber supply elasticities for two forest products than forest industry and NIPF landowners. In the third study, we apply a binomial logit model to investigate the impact of timberland ownership on reforestation effort. We find that the propensity to reforest is different across three ownership categories. The probability of reforestation is 0.83 for institutional owners, 0.80 for forest industry owners, and 0.69 for NIPF landowners. The results suggest that different timberland ownerships have an impact on reforestation activities and that the institutional timberland owners limited investment period of 8-15 years do not hinder their efforts with respect to reforestation and stewardship in forest management.