IDEAS home Printed from https://ideas.repec.org/a/kap/jrefec/v30y2005i4p397-428.html
   My bibliography  Save this article

On REIT CEO Compensation: Does Board Structure Matter?

Author

Listed:
  • Chinmoy Ghosh
  • C. Sirmans

Abstract

In a perfect world where the board of directors is independent of CEO influence, CEO pay-for-performance compensation contracts should be a function of performance only. If the CEO can influence board structure through his ownership of company stock or chairmanship of the board, however, performance contracts are sub-optimal and agency problems arise, which allow the CEO to extract rent and demand compensation in excess of the equilibrium level. As such, models of compensation contracts must include board and ownership structure variables, in addition to the traditional economic determinants. Our analyses with REITs corroborate this notion. Our data demonstrate that the structure of REIT boards are not independent of CEO influence, and significant agency problems exist allowing the CEO to design boards that reward him at the cost of shareholder wealth. CEO compensation in REITs depends significantly on the usual economic measures of performance including firm size and return on assets; more importantly, CEO compensation is higher in REITs where the board is weak in monitoring because of large size, and older directors; the effect of a blockholder is adverse, however. This study provides additional evidence to the growing literature that observed board structures are ineffective in monitoring and governance. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Chinmoy Ghosh & C. Sirmans, 2005. "On REIT CEO Compensation: Does Board Structure Matter?," The Journal of Real Estate Finance and Economics, Springer, vol. 30(4), pages 397-428, June.
  • Handle: RePEc:kap:jrefec:v:30:y:2005:i:4:p:397-428
    DOI: 10.1007/s11146-005-7014-6
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11146-005-7014-6
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s11146-005-7014-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Smith, Clifford Jr. & Watts, Ross L., 1992. "The investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Financial Economics, Elsevier, vol. 32(3), pages 263-292, December.
    2. Barbara J. Davis & Roger M. Shelor, 1995. "Executive Compensation and Financial Performance in the Real Estate Industry," Journal of Real Estate Research, American Real Estate Society, vol. 10(2), pages 141-152.
    3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    4. Capozza, Dennis R & Seguin, Paul J, 2000. "Debt, Agency, and Management Contracts in REITs: The External Advisor Puzzle," The Journal of Real Estate Finance and Economics, Springer, vol. 20(2), pages 91-116, March.
    5. Holthausen, Robert W. & Larcker, David F., 1996. "The financial performance of reverse leveraged buyouts," Journal of Financial Economics, Elsevier, vol. 42(3), pages 293-332, November.
    6. Robert D. Campbell & Chinmoy Ghosh & C. F. Sirmans, 2001. "The Information Content of Method of Payment in Mergers: Evidence from Real Estate Investment Trusts (REITs)," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(3), pages 361-387, March.
    7. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    8. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    9. Chandra S. Mishra & James F. Nielsen, 2000. "Board Independence and Compensation Policies in Large Bank Holding Companies," Financial Management, Financial Management Association, vol. 29(3), Fall.
    10. Brian K. Boyd, 1994. "Board control and ceo compensation," Strategic Management Journal, Wiley Blackwell, vol. 15(5), pages 335-344, June.
    11. Hallock, Kevin F., 1997. "Reciprocally Interlocking Boards of Directors and Executive Compensation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(3), pages 331-344, September.
    12. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    13. Byrd, John W. & Hickman, Kent A., 1992. "Do outside directors monitor managers? *1: Evidence from tender offer bids," Journal of Financial Economics, Elsevier, vol. 32(2), pages 195-221, October.
    14. Brent W. Ambrose & Peter Linneman, 2001. "Reit Organizational Structure and Operating Characteristics," Journal of Real Estate Research, American Real Estate Society, vol. 21(3), pages 141-162.
    15. Holderness, Clifford G. & Sheehan, Dennis P., 1988. "The role of majority shareholders in publicly held corporations : An exploratory analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 317-346, January.
    16. Pennathur, Anita K & Shelor, Roger M, 2002. "The Determinants of REIT CEO Compensation," The Journal of Real Estate Finance and Economics, Springer, vol. 25(1), pages 99-113, July.
    17. Brickley, James A. & Coles, Jeffrey L. & Terry, Rory L., 1994. "Outside directors and the adoption of poison pills," Journal of Financial Economics, Elsevier, vol. 35(3), pages 371-390, June.
    18. Ghosh, Chinmoy & Sirmans, C F, 2003. "Board Independence, Ownership Structure and Performance: Evidence from Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 26(2-3), pages 287-318, March-May.
    19. Core, John E. & Holthausen, Robert W. & Larcker, David F., 1999. "Corporate governance, chief executive officer compensation, and firm performance," Journal of Financial Economics, Elsevier, vol. 51(3), pages 371-406, March.
    20. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
    21. Loderer, Claudio & Martin, Kenneth, 1997. "Executive stock ownership and performance Tracking faint traces," Journal of Financial Economics, Elsevier, vol. 45(2), pages 223-255, August.
    22. Anup Agrawal & Charles R. Knoeber, "undated". "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 8-96, Wharton School Rodney L. White Center for Financial Research.
    23. Sydney Finkelstein & Donald C. Hambrick, 1989. "Chief executive compensation: A study of the intersection of markets and political processes," Strategic Management Journal, Wiley Blackwell, vol. 10(2), pages 121-134, March.
    24. Agrawal, Anup & Knoeber, Charles R., 1996. "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(3), pages 377-397, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Erik Devos & Seow Ong & Andrew Spieler, 2007. "Analyst Activity and Firm Value: Evidence from the REIT Sector," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 333-356, October.
    2. Stefan Winter & Philip Michels, 2019. "The managerial power approach: Is it testable?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(3), pages 637-668, September.
    3. Han, Bing, 2004. "Insider Ownership and Corporate Value: Evidences from Real Estate Investment Trust," Working Paper Series 2004-1, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    4. Steffen Westermann & Scott J. Niblock & Michael A. Kortt, 2018. "A Review of Corporate Social Responsibility and Real Estate Investment Trust Studies: An Australian Perspective," Economic Papers, The Economic Society of Australia, vol. 37(1), pages 92-110, March.
    5. Roberto Barontini & Stefano Bozzi, 2011. "Board compensation and ownership structure: empirical evidence for Italian listed companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(1), pages 59-89, February.
    6. Gang-Zhi Fan & Zsuzsa R. Huszar & Weina Zhang, 2016. "The Helping Hand of the State in Chinese Real Estate Firms: Anti-corruption and Liberalization," International Real Estate Review, Global Social Science Institute, vol. 19(1), pages 51-97.
    7. Hristos Doucouliagos & Janto Haman & Saeed Askary, 2007. "Directors' Remuneration and Performance in Australian Banking," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1363-1383, November.
    8. Zhilan Feng & Chinmoy Ghosh & C. Sirmans, 2007. "Director Compensation and CEO Bargaining Power in REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 225-251, October.
    9. Ling Jong & Poh-Ling Ho, 2018. "Inside the family firms: The impact of family and institutional ownership on executive remuneration," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1432095-143, January.
    10. Zifeng Feng & William G. Hardin & Zhonghua Wu, 2024. "REIT Chief Executive Officer (CEO) Compensation in the New Era," The Journal of Real Estate Finance and Economics, Springer, vol. 69(4), pages 651-681, November.
    11. Cardinaels, Eddy, 2009. "Governance in non-for-profit hospitals: Effects of board members' remuneration and expertise on CEO compensation," Health Policy, Elsevier, vol. 93(1), pages 64-75, November.
    12. Zhilan Feng & Chinmoy Ghosh & C. Sirmans, 2007. "CEO Involvement in Director Selection: Implications for REIT Dividend Policy," The Journal of Real Estate Finance and Economics, Springer, vol. 35(4), pages 385-410, November.
    13. Piet Eichholtz & Nils Kok & Roger Otten, 2008. "Executive Compensation in UK Property Companies," The Journal of Real Estate Finance and Economics, Springer, vol. 36(4), pages 405-426, May.
    14. Doan, Trang & Nguyen, Nga Q., 2018. "Boards of directors and firm leverage: Evidence from real estate investment trusts," Journal of Corporate Finance, Elsevier, vol. 51(C), pages 109-124.
    15. Vishaal Baulkaran & Pawan Jain, 2023. "CDS contract initiations: REIT board monitoring and corporate decision outcomes," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(1), pages 217-246, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chinmoy Ghosh & C. Sirmans, 2006. "Do Managerial Motives Impact Dividend Decisions in REITs?," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 327-355, May.
    2. Bradley W. Benson & Wallace N. Davidson III & Hongxia Wang & Dan L. Worrell, 2011. "Deviations from Expected Stakeholder Management, Firm Value, and Corporate Governance," Financial Management, Financial Management Association International, vol. 40(1), pages 39-81, March.
    3. Han, Bing, 2004. "Insider Ownership and Corporate Value: Evidences from Real Estate Investment Trust," Working Paper Series 2004-1, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    4. James, Hui & Benson, Bradley W. & Wu, Chen (Ken), 2017. "Does CEO ownership affect payout policy? Evidence from using CEO scaled wealth-performance sensitivity," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 328-345.
    5. James, Hui Liang & Borah, Nilakshi & Lirely, Roger, 2022. "The effectiveness of board independence in high-discretion firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 103-117.
    6. Benson, Bradley W. & Chen, Yu & James, Hui L. & Park, Jung Chul, 2020. "So far away from me: Firm location and the managerial ownership effect on firm value," Journal of Corporate Finance, Elsevier, vol. 64(C).
    7. Amitava Roy, 2014. "Corporate Governance and Firm Performance: An Exploratory Analysis of Indian Listed Companies," Jindal Journal of Business Research, , vol. 3(1-2), pages 93-120, June.
    8. Nicolas Kohl & Wolfgang Schaefers, 2012. "Corporate Governance and Market Valuation of Publicly Traded Real Estate Companies: Evidence from Europe," The Journal of Real Estate Finance and Economics, Springer, vol. 44(3), pages 362-393, April.
    9. Pascal Nguyen & Nahid Rahman & Alex Tong & Ruoyun Zhao, 2016. "Board size and firm value: evidence from Australia," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 20(4), pages 851-873, December.
    10. Byers, Steven S. & Fields, L. Paige & Fraser, Donald R., 2008. "Are corporate governance and bank monitoring substitutes: Evidence from the perceived value of bank loans," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 475-483, September.
    11. Bing Han, 2006. "Insider Ownership and Firm Value: Evidence from Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 32(4), pages 471-493, June.
    12. Steve Lin & Peter F. Pope & Steven Young, 2003. "Stock Market Reaction to the Appointment of Outside Directors," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 351-382, April.
    13. Denis, David J. & Sarin, Atulya, 1999. "Ownership and board structures in publicly traded corporations," Journal of Financial Economics, Elsevier, vol. 52(2), pages 187-223, May.
    14. Core, John E. & Holthausen, Robert W. & Larcker, David F., 1999. "Corporate governance, chief executive officer compensation, and firm performance," Journal of Financial Economics, Elsevier, vol. 51(3), pages 371-406, March.
    15. Loureiro, Gilberto & Makhija, Anil K. & Zhang, Dan, 2011. "Why Do Some CEOs Work for a One-Dollary Salary?," Working Paper Series 2011-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    16. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    17. M. Ameziane Lasfer, 2006. "The Interrelationship Between Managerial Ownership and Board Structure," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7‐8), pages 1006-1033, September.
    18. Wiem Elmanaa Madani & Wafa Khlif, 2005. "Effets De La Structure De Propriete Sur La Performance Comptable : Etude Empirique Sur Les Entreprises Tunisiennes Indistruelles Non Cotees," Post-Print halshs-00581192, HAL.
    19. Li, Donghui & Moshirian, Fariborz & Nguyen, Pascal & Tan, Liwen, 2007. "Corporate governance or globalization: What determines CEO compensation in China?," Research in International Business and Finance, Elsevier, vol. 21(1), pages 32-49, January.
    20. Audretsch, David & Lehmann, Erik, 2002. "Does the New Economy Need New Governance? Ownership, Knowledge and Performance," CEPR Discussion Papers 3626, C.E.P.R. Discussion Papers.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jrefec:v:30:y:2005:i:4:p:397-428. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.