Manipulation in U.S. REIT Investment Performance Evaluation: Empirical Evidence

We investigate whether Real Estate Investment Trust (REIT) managers actively manipulate performance measures in spite of the strict regulation under the REIT regime. We provide empirical evidence that is consistent with this hypothesis. Specifically, manipulation strategies may rely on the opportuni...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2013-10, Vol.47 (3), p.434-465
Main Authors: Alcock, Jamie, Glascock, John, Steiner, Eva
Format: Article
Language:English
Subjects:
Competition
Competitive advantage
Corporate governance
Economics
Economics and Finance
Evaluation
Executive compensation
Financial Services
Hypotheses
Investment
Investment advisors
Investors
Performance evaluation
Property
Real estate
Regional/Spatial Science
REITs
Stock exchanges
U.S.A
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Summary:We investigate whether Real Estate Investment Trust (REIT) managers actively manipulate performance measures in spite of the strict regulation under the REIT regime. We provide empirical evidence that is consistent with this hypothesis. Specifically, manipulation strategies may rely on the opportunistic use of leverage. However, manipulation does not appear to be uniform across REIT sectors and seems to become more common as the level of competition in the underlying property sector increases. We employ a set of commonly used traditional performance measures and a recently developed manipulation-proof measure (MPPM, Goetzmann et al., Rev Finan Stud 20(5):1503–1546,  2007 ) to evaluate the performance of 147 REITs from seven different property sectors over the period 1991–2009. Our findings suggest that the existing REIT regulation may fail to mitigate a substantial agency conflict and that investors can benefit from evaluating return information carefully in order to avoid potentially manipulative funds.
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-012-9378-8