Sponsor, Corporate Governance and Asian REITs Performance

This study aims to investigate the role of sponsor and internal corporate governance mechanisms in the performance of Asian REITs. The presence of sponsors, who are often the controlling unitholders of the REIT and the parent companies of the manager, is argued to exacerbate the agency costs. Under the premise that the sponsors commit to align their interests with that of other unitholders of the REITs, firm performance and board independence are expected to increase with sponsor ownership. Conversely, if sponsors increase their unitholdings to enhance their power to extract private benefits and expropriate the wealth of minority unitholders, sponsor ownership is expected to have a negative relation with board independence and REIT performance. This paper proposes an alternative measurement to calculate the level of sponsor unitholdings in the REIT. Between 2002 and 2012, sponsors retain around 19 percent of Asian REIT underlying assets. The final sample that is used consists of 514 firm-year observations from 91 REITs across Japan, Singapore, Hong Kong and Malaysia. It is found that board independence is negatively related with ownership by insiders (sponsor, CEO, and affiliated directors). The results also show that abnormal returns of REITs increase with insider ownership, but decrease with board independence. Further analysis reveals that REITs with high sponsor ownership outperform those with low sponsor ownership during financial downturn. The evidence seems to suggest that sponsors do not align their interests by appointing more independent directors in the board, but rather by providing REITs with strong development pipelines and support for future acquisition.