Corporate Governance and Performance: The REIT Effect

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...

Full description

Saved in:
Bibliographic Details
Published in:Real estate economics 2010-03, Vol.38 (1), p.1-29
Main Authors: Bauer, Rob, Eichholtz, Piet, Kok, Nils
Format: Article
Language:English
Subjects:
Agency theory
Corporate governance
Financial performance
Indexes
REITs
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary: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.
ISSN:1080-8620
1540-6229
DOI:10.1111/j.1540-6229.2009.00252.x