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REIT excess dividend and information asymmetry: evidence with taxable income

Author

Listed:
  • Ming‐Te Lee
  • Bang‐Han Chiu
  • Ming‐Long Lee
  • Kevin C.H. Chiang
  • V. Carlos Slawson

Abstract

Purpose - US real estate investment trusts (REITs) typically distribute more dividends than required by tax regulations. This paper aims to focus on discretionary dividends, and examines the impact of information asymmetry on this excess component of dividends. Design/methodology/approach - This paper considers a set of US REITs with reported taxable income figures over the 2000‐2007 period, and employs regression analysis to examine the influence of information asymmetry on the excess component of dividends. The explained variable is specified as excess dividends scaled by total assets. Excess dividends are dividends paid over the mandatory dividend payments calculated with taxable income, instead before‐tax net income. Following the REIT studies of Hardin and Hill and Han, this study employs TobinQas the proxy for asymmetric information. Findings - Contrary to Hardin and Hill's conclusion, but consistent with dividend signaling theory as well as agency cost explanations, the results indicate that REITs with higher level of asymmetric information pay out significantly more excess dividends. Nevertheless, in contrast to Deshmukh's study on manufacturing firms, the REIT results are against the prediction of the pecking order theory. Originality/value - The paper is one of the few studies that explicitly examine the factors influencing REIT decision on discretionary dividends. Contrast to previous studies, this study is able to obtain taxable income and compute the discretionary dividends more accurately. Furthermore this paper is able to provide evidence against the pecking order theory, which is not investigated in the existing REIT dividend studies.

Suggested Citation

  • Ming‐Te Lee & Bang‐Han Chiu & Ming‐Long Lee & Kevin C.H. Chiang & V. Carlos Slawson, 2010. "REIT excess dividend and information asymmetry: evidence with taxable income," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 28(3), pages 221-236, April.
    • Handle: RePEc:eme:jpifpp:v:28:y:2010:i:3:p:221-236
    DOI: 10.1108/14635781011048867
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    Citations

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    Cited by:

    1. repec:uts:finphd:35 is not listed on IDEAS
    2. Guojie Ma, 2016. "Corporate Behaviour and Market Integration: Evidence from the Asia-Pacific Real Estate Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 3-2016, January-A.
    3. Subhashis Nandy, 2016. "Empirical Observations on the Tracking Errors and the Risk-Adjusted Returns of REIT-Based Exchange Traded Funds," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(9), pages 1-63, August.
    4. Chinmoy Ghosh & Le Sun, 2014. "Agency Cost, Dividend Policy and Growth: The Special Case of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 48(4), pages 660-708, May.
    5. Rakesh Kumar Sharma, 2021. "Factors influencing dividend decisions of Indian construction, housing and real estate companies: An empirical panel data analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5666-5683, October.
    6. Ranajit Kumar Bairagi & William Dimovski, 2010. "The underpricing of US REIT IPOs: 1996--2010," Journal of Property Research, Taylor & Francis Journals, vol. 28(3), pages 233-248, December.

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