Corporate Governance and Performance: The REIT Effect

R.M.M.J. Bauer; P.M.A. Eichholtz; N. Kok

doi:10.1111/j.1540-6229.2009.00252.x

Corporate Governance and Performance: The REIT Effect

R.M.M.J. Bauer^*, P.M.A. Eichholtz, N. Kok

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

Real estate investment trusts (REITs) offer a natural experiment in corporate governance due to the fact that they leave little free cash flow for management, which reduces agency problems. We exploit a unique and leading corporate governance database to test whether corporate governance matters for the performance of U.S. REITs. We document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies and a control sample of firms with high corporate real estate ratios, we find a strong and significantly positive relation between our governance index and several performance variables, indicating that the partial lack of a relation between governance and performance in the real estate sector might be explained by a REIT effect.

Original language	English
Pages (from-to)	1-29
Number of pages	29
Journal	Real Estate Economics
Volume	38
Issue number	1
DOIs	https://doi.org/10.1111/j.1540-6229.2009.00252.x
Publication status	Published - 1 Jan 2010

Keywords

ESTATE INVESTMENT TRUSTS
INFORMATION ASYMMETRY
EQUITY PRICES
OWNERSHIP
VALUATION
MARKET
AGENCY
COSTS
PROTECTION
MECHANISMS

Access to Document

10.1111/j.1540-6229.2009.00252.x

Cite this

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title = "Corporate Governance and Performance: The REIT Effect",

abstract = "Real estate investment trusts (REITs) offer a natural experiment in corporate governance due to the fact that they leave little free cash flow for management, which reduces agency problems. We exploit a unique and leading corporate governance database to test whether corporate governance matters for the performance of U.S. REITs. We document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies and a control sample of firms with high corporate real estate ratios, we find a strong and significantly positive relation between our governance index and several performance variables, indicating that the partial lack of a relation between governance and performance in the real estate sector might be explained by a REIT effect.",

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AB - Real estate investment trusts (REITs) offer a natural experiment in corporate governance due to the fact that they leave little free cash flow for management, which reduces agency problems. We exploit a unique and leading corporate governance database to test whether corporate governance matters for the performance of U.S. REITs. We document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies and a control sample of firms with high corporate real estate ratios, we find a strong and significantly positive relation between our governance index and several performance variables, indicating that the partial lack of a relation between governance and performance in the real estate sector might be explained by a REIT effect.

KW - ESTATE INVESTMENT TRUSTS

KW - INFORMATION ASYMMETRY

KW - EQUITY PRICES

KW - OWNERSHIP

KW - VALUATION

KW - MARKET

KW - AGENCY

KW - COSTS

KW - PROTECTION

KW - MECHANISMS

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