Good Growth, Bad Growth: How Effective are REITs’ Corporate Watchdogs?

Ruoran Xu () and Joseph Ooi ()
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Ruoran Xu: Southwestern University of Finance and Economics

The Journal of Real Estate Finance and Economics, 2018, vol. 57, issue 1, No 4, 64-86

Abstract: Abstract The rapid growth of REITs over the last two decades raises an old debate on the existence of scale economies. Out of the 874 growth incidents recorded by individual REITs between 1992 and 2012, we observe that 44.5% of them are sub-optimal, that is they resulted in the acquiring REITs operating at decreasing returns to scale. Large REITs with more free cash flows have a higher propensity to engage in bad growth activities. We find evidence that institutional investors play an effective role in discouraging managerial opportunism and empire building. Independent directors and external creditors, however, do not appear to be effective in discouraging REIT managers from making bad growth decisions.

Keywords: REITs; Growth; Economies of scale; Corporate governance (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11146-017-9640-1

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