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Cost Improvements, Returns to Scale, and Cost Inefficiencies for Real Estate Investment Trusts

Author

Listed:
  • Stephen M. Miller

    (University of Connecticut and University of Nevada, Las Vegas)

  • Thomas M. Springer

    (Clemson University)

Abstract

This paper extends the existing research on real estate investment trust (REIT) operating efficiencies. We estimate stochastic-frontier, panel-data models specifying a translog cost function. The specified model updates the cost frontier with new information as it becomes available over time. The model can identify frontier cost improvements, returns to scale, and cost inefficiencies over time. The results disagree with most previous research in that we find no evidence of scale economies and some evidence of scale diseconomies. Moreover, we also generally find smaller inefficiencies than those shown by other REIT studies. Contrary to previous research, higher leverage associates with more efficiency.

Suggested Citation

  • Stephen M. Miller & Thomas M. Springer, 2007. "Cost Improvements, Returns to Scale, and Cost Inefficiencies for Real Estate Investment Trusts," Working papers 2007-05, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2007-05
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    References listed on IDEAS

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    1. Lewis, Danielle & Springer, Thomas M & Anderson, Randy I, 2003. "The Cost Efficiency of Real Estate Investment Trusts: An Analysis with a Bayesian Stochastic Frontier Model," The Journal of Real Estate Finance and Economics, Springer, vol. 26(1), pages 65-80, January.
    2. Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-598, October.
    3. Martina Bers & Thomas M. Springer, 1997. "Economies of Scale for Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 14(3), pages 275-290.
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    6. Noulas, Athanasios G & Ray, Subhash C & Miller, Stephen M, 1990. "Returns to Scale and Input Substitution for Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 94-108, February.
    7. Brent Ambrose & Peter Linneman, 2001. "REIT Organizational Structure and Operating Characteristics," Journal of Real Estate Research, Taylor & Francis Journals, vol. 21(3), pages 141-162, January.
    8. Stephen M. Miller & Terrence M. Clauretie & Thomas M. Springer, 2006. "Economies Of Scale And Cost Efficiencies: A Panel‐Data Stochastic‐Frontier Analysis Of Real Estate Investment Trusts," Manchester School, University of Manchester, vol. 74(4), pages 483-499, July.
    9. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
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    12. 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.
    13. Brent W. Ambrose & Michael J. Highfield & Peter D. Linneman, 2005. "Real Estate and Economies of Scale: The Case of REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(2), pages 323-350, June.
    14. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
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    19. Stigler, George J, 1976. "The Xistence of X-Efficiency," American Economic Review, American Economic Association, vol. 66(1), pages 213-216, March.
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    Cited by:

    1. Chen, Kun & Song, Yao-yao & Pan, Jiao-feng & Yang, Guo-liang, 2020. "Measuring destocking performance of the Chinese real estate industry: A DEA-Malmquist approach," Socio-Economic Planning Sciences, Elsevier, vol. 69(C).
    2. Yang, Guo-liang & Fukuyama, Hirofumi & Chen, Kun, 2019. "Investigating the regional sustainable performance of the Chinese real estate industry: A slack-based DEA approach," Omega, Elsevier, vol. 84(C), pages 141-159.
    3. Hui Chen Chiang & Yih Ching Tsaih & Wen-Cheng Hsiao, 2016. "The Efficiency Analysis Of Singapore Real Estate Investment Trusts," Eurasian Journal of Business and Management, Eurasian Publications, vol. 4(4), pages 9-20.
    4. Joseph R. Nicholson & James A. Stevens, 2022. "REIT Operational Efficiency: External Advisement and Management," The Journal of Real Estate Finance and Economics, Springer, vol. 65(1), pages 127-151, July.
    5. Apostolos Ampountolas, 2022. "Postcrisis REIT performance using financial ratios: A DEA approach," Tourism Economics, , vol. 28(2), pages 371-393, March.
    6. Chia-Nan Wang & Hsien-Pin Hsu & Jing-Wein Wang & Yang-Chin Kao & Thi-Phuong Nguyen, 2020. "Strategic Alliance for Vietnam Domestic Real Estate Companies Using a Hybrid Approach Combining GM (1,1) with Super SBM DEA," Sustainability, MDPI, vol. 12(5), pages 1-23, March.

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    More about this item

    Keywords

    Real Estate Investment Trusts; X-efficiency; scale economies;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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