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Principal‐agent Issues in Asset Acquisition: UK Institutions and their Investment Agents

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Listed:
  • P. McAllister
  • C. Hughes
  • P. Gallimore

Abstract

This paper explores principal‐agent issues in the stock selection processes of institutional property investors. Drawing upon an interview survey of fund managers and acquisition professionals, it focuses on the relationships between principals and external agents as they engage in property transactions. The research investigated the extent to which the presence of outcome‐based remuneration structures could lead to biased advice, overbidding and/or poor asset selection. It is concluded that institutional property buyers are aware of incentives for opportunistic behaviour by external agents, often have sufficient expertise to robustly evaluate agents’ advice and that these incentives are counter‐balanced by a number of important controls on potential opportunistic behaviour. There are strong counter‐incentives in the need for the agents to establish personal relationships and trust between themselves and institutional buyers, to generate repeat and related business and to preserve or generate a good reputation in the market.

Suggested Citation

  • P. McAllister & C. Hughes & P. Gallimore, 2009. "Principal‐agent Issues in Asset Acquisition: UK Institutions and their Investment Agents," Journal of Property Research, Taylor & Francis Journals, vol. 25(4), pages 269-283, February.
    • Handle: RePEc:taf:jpropr:v:25:y:2009:i:4:p:269-283
    DOI: 10.1080/09599910902837010
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    References listed on IDEAS

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    1. Ingo Walter, 2003. "Conflicts of Interest and Market Discipline Among Financial Services Firms," Working Papers 03-24, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, November.
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