Do Internally Managed Reits Manage Earnings More Than Externally Managed Reits?

Ajayi Oluwaseun Damilola () and Akinsomi Omokolade ()
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Ajayi Oluwaseun Damilola: Department of Real Estate, School of the Built Environment, London Metropolitan University, 166-220 Holloway Rd, London N7 8DB, United Kingdom
Akinsomi Omokolade: School of Construction Economics and Management, University of the Witwatersrand, 1 Jan Smuts Ave, Braamfontein, Johannesburg, 2017, South Africa

Real Estate Management and Valuation, 2024, vol. 32, issue 4, 28-43

Abstract: The purpose of the paper was to provide an empirical examination of earnings management among internally and externally managed REITs. The empirical accounting literature claims that internal management of a firm does not constrain earnings management, while others argue in favor of internal management for firms. Using a sample of listed South African REITs for the 2013 - 2021 time period, we examine the relationship between management structures and earnings management. We do not find any aggressive practice in internally managed REITs during the study period. The study’s findings imply that good corporate governance is a critical safeguard for stakeholders in exceptional circumstances when REITs have special incentives to manage earnings; as a result, it is suggested that REITs’ corporate governance is important, despite being overlooked in some circumstances. Specific to South African REITs, policymakers as well as nominating committees of the board of directors may wish to take note that financial competence is an important quality of external directors in order to effectively curb earnings management. This is the first study to investigate financial sheet manipulation among REITs management structures in an emerging market.

Keywords: earnings management; discretionary accruals; REITs; emerging markets (search for similar items in EconPapers)
JEL-codes: R10 R15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:remava:v:32:y:2024:i:4:p:28-43:n:1003

DOI: 10.2478/remav-2024-0033

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