Ownership Dynamics of REITs

Robert Edelstein, Branko Urošević and Nicholas Wonder

The Journal of Real Estate Finance and Economics, 2005, vol. 30, issue 4, 447-466

Abstract: This paper studies the effects that benefits of control and moral hazard have on the evolution of large stakes in REITs. A large risk-averse shareholder trades off the net benefits of REIT business monitoring and control with the cost of bearing risk beyond the level compensated by the REIT return premium. In equilibrium, the large shareholder gradually adjusts his ownership shares level (as long as his marginal benefits from holding shares increase in his REIT stake) towards the long-run competitive equilibrium in which his marginal share valuation coincides with that of the market. Because of the moral hazard, such level of ownership (and monitoring) is, in general, inefficient. The speed of adjustment is positively correlated with the agent’s risk aversion and company volatility, and negatively correlated with his marginal benefits of control and beneficial monitoring effects. Copyright Springer Science + Business Media, Inc. 2005

Keywords: real estate investment trusts; corporate stock ownership; real estate returns; stock market price dynamics (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jrefec:v:30:y:2005:i:4:p:447-466

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DOI: 10.1007/s11146-005-7016-4

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