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Technical, Allocative and Scale Efficiencies of REITs:

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  • John C. Topuz
  • Ali F. Darrat
  • Roger M. Shelor

Abstract

This paper empirically explores various efficiency aspects of Real Estate Investment Trusts (REITs) in light of their remarkable growth in the 1990s. We find clear evidence of considerable technical inefficiency in REITs, though not much indication for allocative or scale inefficiency. The results also suggest that an increasing number of REITs has been operating under diseconomies of scale since the late 1990s primarily due to the recent wave of consolidation and merger activities. As creatures of the US tax code, REIT's have undergone several changes to their operating status, and our results suggest that the prevalent regulatory environment appears too onerous for the industry and may have contributed to the REITs' poor efficiency performance. In particular, further cuts or total elimination of the dividend restriction on REITs could provide much needed relief and stability in the US real estate market. Copyright Blackwell Publishers Ltd, 2005.

Suggested Citation

  • John C. Topuz & Ali F. Darrat & Roger M. Shelor, 2005. "Technical, Allocative and Scale Efficiencies of REITs:," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9-10), pages 1961-1994.
  • Handle: RePEc:bla:jbfnac:v:32:y:2005-11:i:9-10:p:1961-1994
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    References listed on IDEAS

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    1. Avkiran, Necmi Kemal, 1999. "The evidence on efficiency gains: The role of mergers and the benefits to the public," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 991-1013, July.
    2. 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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    4. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    5. Miller, Stephen M. & Noulas, Athanasios G., 1996. "The technical efficiency of large bank production," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 495-509, April.
    6. Pi, Lynn & Timme, Stephen G., 1993. "Corporate control and bank efficiency," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 515-530, April.
    7. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    8. Anderson, Randy I. & Fok, Robert & Springer, Thomas & Webb, James, 2002. "Technical efficiency and economies of scale: A non-parametric analysis of REIT operating efficiency," European Journal of Operational Research, Elsevier, vol. 139(3), pages 598-612, June.
    9. Ambrose, Brent W. & Ehrlich, Steven R. & Hughes, William T. & Wachter, Susan M., 2000. "REIT Economies of Scale: Fact or Fiction?," The Journal of Real Estate Finance and Economics, Springer, vol. 20(2), pages 211-224, March.
    10. Leigh Drake, 2001. "Efficiency and productivity change in UK banking," Applied Financial Economics, Taylor & Francis Journals, vol. 11(5), pages 557-571.
    11. Bauer, Paul W. & Berger, Allen N. & Ferrier, Gary D. & Humphrey, David B., 1998. "Consistency Conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods," Journal of Economics and Business, Elsevier, vol. 50(2), pages 85-114, March.
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    Cited by:

    1. Badunenko, Oleg & Fritsch, Michael & Stephan, Andreas, 2008. "Allocative efficiency measurement revisited--Do we really need input prices?," Economic Modelling, Elsevier, vol. 25(5), pages 1093-1109, September.
    2. Ahmad, Usman, 2011. "Financial Reforms and Banking Efficiency: Case of Pakistan," MPRA Paper 34220, University Library of Munich, Germany.
    3. repec:ire:issued:v:20:n:03:2017:p:349-374 is not listed on IDEAS
    4. repec:kap:jrefec:v:57:y:2018:i:1:d:10.1007_s11146-017-9640-1 is not listed on IDEAS
    5. repec:eee:quaeco:v:66:y:2017:i:c:p:70-99 is not listed on IDEAS
    6. Julia Freybote & Lihong Qian, 2015. "The impact of asset location on REIT merger decisions," Journal of Property Research, Taylor & Francis Journals, vol. 32(2), pages 103-122, June.
    7. repec:eee:jomega:v:84:y:2019:i:c:p:141-159 is not listed on IDEAS
    8. Qayyum, Abdul & Ahmed, Munir, 2006. "Efficiency and Sustainability of Micro Finance Institutions in South Asia," MPRA Paper 85467, University Library of Munich, Germany, revised 2014.

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