IDEAS home Printed from https://ideas.repec.org/a/pal/ijodag/v20y2023i4d10.1057_s41310-023-00194-4.html
   My bibliography  Save this article

Investment and finance committees composition and firm performance: evidence from US Real Estate Investment Trusts (REITs)

Author

Listed:
  • Magdy C. Noguera

    (University of Idaho)

Abstract

The purpose of this research is to examine the effect of inside directors sitting on finance and investment committees on US Real Estate Investment Trusts (REITs) performance. The study is based on a sample of 60 US equity REITs of which 31 are the REITs listed on the S&P 500 and 29 are a random sample of non-S&P 500 REITs for the 2010–2019 period. I use panel random regression models, controlling for heteroscedasticity and group correlation, to explore this research question. For the S&P 500 REITs, I find a positive relationship between the percentage of inside directors on investment but not finance committees and performance as measured by return on assets. These results are consistent with Fama and Jensen’s (J Law Econ 26(2):301–326, 1983) claim that inside directors provide valuable information to boards about the firm’s long-term investment decisions. For non-S&P 500 REITs, I find a negative relationship between insiders sitting on finance committees and REIT performance as measured by both return on assets and return on equity. The discrepancy in results between S&P 500 REITs and non-S&P 500 REITs is most likely due to their differences in REITs’ sizes and phase in the life cycle which is consistent with findings from previous research (Zahra and Pearce in J Manag 15(2):291–334, 1989; Linck et al. in J Financ Econ 87(2):308–328, 2008) and with the hypothesis that the optimal board design varies depending on the nature and firm-level characteristics of firms.

Suggested Citation

  • Magdy C. Noguera, 2023. "Investment and finance committees composition and firm performance: evidence from US Real Estate Investment Trusts (REITs)," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(4), pages 478-489, December.
    • Handle: RePEc:pal:ijodag:v:20:y:2023:i:4:d:10.1057_s41310-023-00194-4
    DOI: 10.1057/s41310-023-00194-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41310-023-00194-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1057/s41310-023-00194-4?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. Renee B. Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2010. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 58-107, March.
    2. Anil Shivdasani & David Yermack, 1999. "CEO Involvement in the Selection of New Board Members: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 54(5), pages 1829-1853, October.
    3. Boone, Audra L. & Casares Field, Laura & Karpoff, Jonathan M. & Raheja, Charu G., 2007. "The determinants of corporate board size and composition: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 85(1), pages 66-101, July.
    4. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, February.
    5. Raheja, Charu G., 2005. "Determinants of Board Size and Composition: A Theory of Corporate Boards," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(2), pages 283-306, June.
    6. Brickley, James A. & Zimmerman, Jerold L., 2010. "Corporate governance myths: Comments on Armstrong, Guay, and Weber," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 235-245, December.
    7. Sudipta Basu & Eunju (Ivy) Lee, 2022. "Antecedents of and outcomes after finance committee use," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(3-4), pages 491-535, March.
    8. Klein, April, 1998. "Firm Performance and Board Committee Structure," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 275-303, April.
    9. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    10. Adams, Renée B. & Ragunathan, Vanitha & Tumarkin, Robert, 2021. "Death by committee? An analysis of corporate board (sub-) committees," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1119-1146.
    11. Na Li & Aida Sijamic Wahid, 2018. "Director Tenure Diversity and Board Monitoring Effectiveness," Contemporary Accounting Research, John Wiley & Sons, vol. 35(3), pages 1363-1394, September.
    12. Kim, Kyonghee & Mauldin, Elaine & Patro, Sukesh, 2014. "Outside directors and board advising and monitoring performance," Journal of Accounting and Economics, Elsevier, vol. 57(2), pages 110-131.
    13. Lisa A. C. Frank & Chinmoy Ghosh, 2012. "Does firm governance affect institutional investment? Evidence from real estate investment trusts," Applied Financial Economics, Taylor & Francis Journals, vol. 22(13), pages 1063-1078, July.
    14. Reeb, David & Upadhyay, Arun, 2010. "Subordinate board structures," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 469-486, 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. Alfonso Valero, 2024. "Diversification strategies for indirect real estate. Intersection of business, economics, and society in shanghai mixed-use developments," SN Business & Economics, Springer, vol. 4(10), pages 1-26, October.

    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. Volonté, Christophe, 2015. "Boards: Independent and committed directors?," International Review of Law and Economics, Elsevier, vol. 41(C), pages 25-37.
    2. Adams, Mike & Jiang, Wei, 2016. "Do outside directors influence the financial performance of risk-trading firms? Evidence from the United Kingdom (UK) insurance industry," Journal of Banking & Finance, Elsevier, vol. 64(C), pages 36-51.
    3. Ahn, Seoungpil & Shrestha, Keshab, 2013. "The differential effects of classified boards on firm value," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 3993-4013.
    4. Yin Liu & Huiqi Gan & Khondkar Karim, 2021. "The effectiveness of chief financial officer board membership in improving corporate investment efficiency," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 487-521, August.
    5. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, January.
    6. Henrique Castro Martins & Cristiano Machado Costa, 2020. "Does control concentration affect board busyness? International evidence," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(3), pages 821-850, September.
    7. 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.
    8. Ahsan Habib & Md. Borhan Uddin Bhuiyan & Mostafa Monzur Hasan, 2018. "Firm life cycle and advisory directors," Australian Journal of Management, Australian School of Business, vol. 43(4), pages 575-592, November.
    9. Derek Horstmeyer, 2019. "Beyond Independence: CEO Influence and the Internal Operations of the Board," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-40, June.
    10. Vafeas, Nikos & Vlittis, Adamos, 2019. "Board executive committees, board decisions, and firm value," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 43-63.
    11. Franco Ernesto Rubino & Paolo Tenuta & Domenico Rocco Cambrea, 2017. "Board characteristics effects on performance in family and non-family business: a multi-theoretical approach," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(3), pages 623-658, September.
    12. Øyvind Bøhren & Siv Staubo, 2016. "Mandatory Gender Balance and Board Independence," European Financial Management, European Financial Management Association, vol. 22(1), pages 3-30, January.
    13. Dahya, Jay & Golubov, Andrey & Petmezas, Dimitris & Travlos, Nickolaos G., 2019. "Governance mandates, outside directors, and acquirer performance," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 218-238.
    14. Yunhe Li & Faqin Lan, 2021. "The determinants of adjustment speed of board structure: evidence from Chinese listed companies," Review of Managerial Science, Springer, vol. 15(3), pages 725-753, April.
    15. Bill Francis & Iftekhar Hasan & Qiang Wu, 2015. "Professors in the Boardroom and Their Impact on Corporate Governance and Firm Performance," Financial Management, Financial Management Association International, vol. 44(3), pages 547-581, September.
    16. Georgeta Vintila & Stefan Cristian Gherghina, 2013. "Board of Directors Independence and Firm Value: Empirical Evidence Based on the Bucharest Stock Exchange Listed Companies," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 885-900.
    17. Boone, Audra L. & Mulherin, J. Harold, 2017. "Who monitors the monitor? The use of special committees by target firms in corporate takeovers," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 388-404.
    18. Hahn, Peter D. & Lasfer, Meziane, 2016. "Impact of foreign directors on board meeting frequency," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 295-308.
    19. Wu, Chloe Yu-Hsuan & Hsu, Hwa-Hsien, 2018. "Founders and board structure: Evidence from UK IPO firms," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 19-31.
    20. Olubunmi Faleye & Rani Hoitash & Udi Hoitash, 2018. "Industry expertise on corporate boards," Review of Quantitative Finance and Accounting, Springer, vol. 50(2), pages 441-479, February.

    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:pal:ijodag:v:20:y:2023:i:4:d:10.1057_s41310-023-00194-4. 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.palgrave.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.