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Economies Of Scale And Cost Efficiencies: A Panel‐Data Stochastic‐Frontier Analysis Of Real Estate Investment Trusts

Author

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  • STEPHEN M. MILLER
  • TERRENCE M. CLAURETIE
  • THOMAS M. SPRINGER

Abstract

This paper extends the existing research on real estate investment trust (REIT) operating efficiencies. We estimate a stochastic‐frontier, panel‐data model specifying a translog cost function, covering 1995–2003. The results disagree with previous research in that we find little evidence of scale economies and some evidence of scale diseconomies. Moreover, we also generally find smaller inefficiencies than those shown by other REIT studies. Contrary to previous research, the results also show that self‐management of a REIT associates with more inefficiency when we measure output with assets. When we use revenue to measure output, self‐management associates with more efficiency. Also contrary to previous research, higher leverage associates with more efficiency. The results further suggest that inefficiency increases over time in three of our four specifications.

Suggested Citation

  • Stephen M. Miller & Terrence M. Clauretie & Thomas M. Springer, 2006. "Economies Of Scale And Cost Efficiencies: A Panel‐Data Stochastic‐Frontier Analysis Of Real Estate Investment Trusts," Manchester School, University of Manchester, vol. 74(4), pages 483-499, July.
    • Handle: RePEc:bla:manchs:v:74:y:2006:i:4:p:483-499
    DOI: 10.1111/j.1467-9957.2006.00505.x
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    Cited by:

    1. Michael J. Highfield & Lily Shen & Thomas M. Springer, 2021. "Economies of Scale and the Operating Efficiency of REITs: A Revisit," The Journal of Real Estate Finance and Economics, Springer, vol. 62(1), pages 108-138, January.
    2. Ambrose, Brent W. & Fuerst, Franz & Mansley, Nick & Wang, Zilong, 2019. "Size effects and economies of scale in European real estate companies," Global Finance Journal, Elsevier, vol. 42(C).
    3. Ruoran Xu & Joseph T. L. Ooi, 2018. "Good Growth, Bad Growth: How Effective are REITs’ Corporate Watchdogs?," The Journal of Real Estate Finance and Economics, Springer, vol. 57(1), pages 64-86, July.
    4. Vincent Charles & Ioannis E. Tsolas & Tatiana Gherman, 2018. "Satisficing data envelopment analysis: a Bayesian approach for peer mining in the banking sector," Annals of Operations Research, Springer, vol. 269(1), pages 81-102, October.
    5. Stephen M. Miller & Thomas M. Springer, 2007. "Cost Improvements, Returns to Scale, and Cost Inefficiencies for Real Estate Investment Trusts," Working papers 2007-05, University of Connecticut, Department of Economics.
    6. Daniel Huerta & Christopher Mothorpe, 2025. "The Impact of Property Clustering on REIT Operational Efficiency and Firm Value," The Journal of Real Estate Finance and Economics, Springer, vol. 71(3), pages 476-509, October.
    7. Mansley, Nick & Wang, Zilong & Weng, Xiaoyu & Zhang, Wenjing, 2023. "Good growth, bad growth: Market reaction to capital raising for REIT expansion," International Review of Financial Analysis, Elsevier, vol. 86(C).
    8. Isik, Ihsan & Topuz, John C., 2017. "Meet the “born efficient” financial institutions: Evidence from the boom years of US REITs," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 70-99.
    9. Hui Chen Chiang & Yih Ching Tsaih & Wen-Cheng Hsiao, 2016. "The Efficiency Analysis Of Singapore Real Estate Investment Trusts," Eurasian Journal of Business and Management, Eurasian Publications, vol. 4(4), pages 9-20.

    More about this item

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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