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REIT Auditor Fees and Financial Market Transparency

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  • Bartley R. Danielsen
  • David M. Harrison
  • Robert A. Van Ness
  • Richard S. Warr
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    Abstract

    This article examines the relationship between overinvestment in audit services, abnormal nonaudit fees paid to the auditor and market-based measures of firm transparency. Because real estate investment trusts (REITs) must distribute 90% of their earnings as dividends, many are repeat participants in the seasoned equity market. Thus, REITs have unusually strong incentives to strive for security market transparency. We find that the capital markets reward REITs that overinvest in audit services with better liquidity as measured by bid-ask spreads. However, firms with abnormally high nonaudit expenditures appear to be penalized with wider spreads, consistent with the notion that such fees may compromise auditor independence. Copyright (c) 2009 American Real Estate and Urban Economics Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6229.2009.00250.x
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    Bibliographic Info

    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 37 (2009)
    Issue (Month): 3 ()
    Pages: 515-557

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    Handle: RePEc:bla:reesec:v:37:y:2009:i:3:p:515-557

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    Cited by:
    1. James Doran & David Peterson & S. Price, 2012. "Earnings Conference Call Content and Stock Price: The Case of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 45(2), pages 402-434, August.
    2. Paul Goebel & David Harrison & Jeffrey Mercer & Ryan Whitby, 2013. "REIT Momentum and Characteristic-Related REIT Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 47(3), pages 564-581, October.
    3. S. Price & Dean Gatzlaff & C. Sirmans, 2012. "Information Uncertainty and the Post-Earnings-Announcement Drift Anomaly: Insights from REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 44(1), pages 250-274, January.
    4. Gyamfi-Yeboah, Frank & Ling, David C. & Naranjo, Andy, 2012. "Information, uncertainty, and behavioral effects: Evidence from abnormal returns around real estate investment trust earnings announcements," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1930-1952.

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