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Corporate Governance and Performance: the REIT Effect

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  • Eichholtz, Piet

    (Maastricht U)

  • Bauer, Rob
  • Kok, Nils

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.

Suggested Citation

  • Eichholtz, Piet & Bauer, Rob & Kok, Nils, 2008. "Corporate Governance and Performance: the REIT Effect," Working Papers 08-3, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:08-3
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    File URL: http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6229.2009.00252.x/abstract;jsessionid=B508672B00104C86223BF3667B3C84FC.f02t02
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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