Financial and Corporate Governance Changes in Public Firms Transitioning from Non-Traded to Exchange-Listed Status: A Clinical Study of REITS

n this paper, we look at the changes in corporate governance and dividend policy of non-traded REITs’ whose managers elect to list on a stock exchange. Following their listing, we find that transitioning REITs have on average larger, more independent boards and are more likely to have an independent compensation committee and nominating committee. In addition, they have higher CEO compensation, higher board remuneration, and have more institutional owners investing in their shares post-listing. We document that several transitioning REITs complete reverse stock splits right before going public affecting initial shareholders’ wealth negatively. Finally, we find that despite having an FFO payout comparable to that of traded REITs, non-traded REITs have a lower return of capital, a higher dividend payout ratio and pay more of their dividends out of capital than do traded REITs.