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 |
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Pages (from-to) | 1-29 |
Number of pages | 29 |
Journal | Real Estate Economics |
Volume | 38 |
Issue number | 1 |
DOIs | |
Publication status | Published - 1 Jan 2010 |
Keywords
- ESTATE INVESTMENT TRUSTS
- INFORMATION ASYMMETRY
- EQUITY PRICES
- OWNERSHIP
- VALUATION
- MARKET
- AGENCY
- COSTS
- PROTECTION
- MECHANISMS