Fee Structure, Financing, and Investment Decisions: The Case of REITs

Pierpaolo Pattitoni, Barbara Petracci () and Massimo Spisni ()
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Barbara Petracci: Department of Management, University of Bologna, Italy
Massimo Spisni: Department of Management, University of Bologna, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We propose a model to show how the fee structure of listed Real Estate Investment Trusts (REITs) can increase instead of decrease Management Company opportunistic behaviors. Distinguishing between performance fees paid on the fund market value and management fees paid either on the Net Asset Value (NAV) or on the Gross Asset Value (GAV), we show that only the former aligns the Management Company and shareholder interests. In particular, we demonstrate that management fees lead Management Companies to make suboptimal financing and investment decisions in order to maximize their own wealth at the expense of shareholders. We test the predictions of the model empirically using a panel of Italian listed REITs.

Keywords: Real Estate Investment Trusts; Fees; Debt; Investment (search for similar items in EconPapers)
JEL-codes: C23 G20 G23 G28 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:30_11

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