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Corporate Governance and Performance: the REIT Effect

Piet Eichholtz, Rob Bauer and Nils Kok
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Piet Eichholtz: Maastricht U

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: REITs offer a natural experiment in corporate governance due to the fact that they leave little free cash flow for management, which reduces agency problems. We exploit a unique and leading corporate governance database to test whether corporate governance matters for the performance of U.S. REITs. We document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies, and a control sample of firms with high corporate real estate ratios, we find a strong and significantly positive relation between our governance index and several performance variables, indicating that the partial lack of a relation between governance and performance in the real estate sector might be explained by a REIT effect.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2008-03
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Journal Article: Corporate Governance and Performance: The REIT Effect (2010) Downloads
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