Economies of Scale and the Operating Efficiency of REITs: A Revisit

Michael J. Highfield (), Lily Shen () and Thomas M. Springer ()
Additional contact information
Michael J. Highfield: Mississippi State University
Lily Shen: Clemson University
Thomas M. Springer: Clemson University

The Journal of Real Estate Finance and Economics, 2021, vol. 62, issue 1, No 5, 108-138

Abstract: Abstract Building on past research regarding the operating efficiency of Real Estate Investment Trusts (REITs) and recognizing the substantial changes in this industry since the turn of the millennium, we examine REIT efficiency over the period 2001–2015. Using both time-varying stochastic frontier and linear models of costs, revenues, and performance measures, we find evidence showing that the REIT industry is slowly moving away from both cost and revenue efficiency over time; however, size remains positively correlated with efficiency. Despite the rapid expansion of asset sizes and evidence of diminishing efficiencies of scale, larger REITs still enjoy comparative advantages over smaller REITs in both revenue (production) and costs. We also find evidence that post-recession efficiencies exceed pre-recession efficiencies, and we document modest evidence of the “weeding-out” of inefficient enterprises during the market downturn. The results suggest, through a diverse set of measures, that additional efficiency opportunities for REITs may be achievable through continued growth and consolidation.

Keywords: REITs; Economies of scale; Operating efficiency (search for similar items in EconPapers)
JEL-codes: D22 D24 G30 R30 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s11146-019-09741-9 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jrefec:v:62:y:2021:i:1:d:10.1007_s11146-019-09741-9

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11146/PS2

DOI: 10.1007/s11146-019-09741-9

Access Statistics for this article

The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

More articles in The Journal of Real Estate Finance and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().