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Stock Market Information and REIT Earnings Management

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Author Info

  • Brent Ambrose

    ()
    (The Pennsylvania State University)

  • Xun Bian

    ()
    (The Pennsylvania State University)

Abstract

This paper investigates the interaction between stock price movement and REIT earnings management. We examine whether information generated from stock trading influences managers' incentives to engage in earnings management. We first test if stock investors are able to detect earnings management by examining whether REITs that are suspected of engaging in earnings management have fundamental values less closely tracked by their stock prices. Consistent with the efficient markets hypothesis, we find that suspected earnings- management firms do not appear to be more mispriced than others. We further inquire into the feedback effect of stock market trading activity on earnings management. Using idiosyncratic volatility as a measure of private information embedded in stock price, we find that negative real earnings management, which allows REITs to circumvent the mandatory dividend payout requirement, is associated with greater information embedded in REIT stock prices. Our result implies that information contained in stock price volatility motivates REIT managers to more actively avoid regulatory costs.

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File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol32n01/05.101_138.pdf
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Bibliographic Info

Article provided by American Real Estate Society in its journal journal of Real Estate Research.

Volume (Year): 32 (2010)
Issue (Month): 1 ()
Pages: 101-138

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Handle: RePEc:jre:issued:v:32:n:1:2010:p:101-138

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Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Web page: http://www.aresnet.org/

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Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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Cited by:
  1. Paul Anglin & Robert Edelstein & Yanmin Gao & Desmond Tsang, 2013. "What is the Relationship Between REIT Governance and Earnings Management?," The Journal of Real Estate Finance and Economics, Springer, vol. 47(3), pages 538-563, October.
  2. Lee, Chien-Chiang & Chien, Mei-Se & Lin, Tsoyu Calvin, 2012. "Dynamic modelling of real estate investment trusts and stock markets," Economic Modelling, Elsevier, vol. 29(2), pages 395-407.

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