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CEO Overconfidence, REIT Investment Activity and Performance

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  • Piet Eichholtz
  • Erkan Yönder

Abstract

type="main"> This is the first article to study the effects of overconfidence on trading activity and performance in real estate. The article looks at Real Estate Investment Trusts (REITs), as their investments and divestments can be identified with precision. We look at the effect of CEO overconfidence on investment activity and separately investigate property acquisitions and dispositions. We find that REITs with overconfident CEOs tend to invest more; these REITs acquire more assets and are less likely to sell assets than their counterparts if they have enough discretionary cash. Valuable private information is not the main driver for CEOs to be net buyers of company shares: the shares of their companies perform relatively weakly. In addition, we find that overconfident managers have lower property investment performance measured by net operating income and gain on sale of real estate.

Suggested Citation

  • Piet Eichholtz & Erkan Yönder, 2015. "CEO Overconfidence, REIT Investment Activity and Performance," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(1), pages 139-162, March.
    • Handle: RePEc:bla:reesec:v:43:y:2015:i:1:p:139-162
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    File URL: http://hdl.handle.net/10.1111/1540-6229.12054
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    References listed on IDEAS

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    Cited by:

    1. David C. Ling & Chongyu Wang & Tingyu Zhou, 2021. "Institutional common ownership and firm value: Evidence from real estate investment trusts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(1), pages 187-223, March.
    2. Brent W. Ambrose & Brad Case & Seow Eng Ong, 2015. "Introduction to the Special Issue," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(1), pages 1-7, March.
    3. Fan Zhang & Joseph T. L. Ooi, 2022. "CEO's age and acquisition behaviors of REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(4), pages 1107-1140, December.
    4. Helen X. H. Bao & Steven Haotong Li, 2016. "Overconfidence And Real Estate Research: A Survey Of The Literature," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(04), pages 1-24, September.
    5. Zifeng Feng & William G. Hardin & Zhonghua Wu, 2024. "REIT Chief Executive Officer (CEO) Compensation in the New Era," The Journal of Real Estate Finance and Economics, Springer, vol. 69(4), pages 651-681, November.
    6. Helen Bao & Haotong Li, 2017. "CEO Overconfidence in Real Estate Markets: A Curse or A Blessing?," ERES eres2017_157, European Real Estate Society (ERES).
    7. Chan, Alex W.H. & Cheung, Hoi Yan, 2016. "Extraversion, individualism and M&A activities," International Business Review, Elsevier, vol. 25(1), pages 356-369.
    8. Dongshin Kim & Dongkuk Lim & Jonathan A. Wiley, 2023. "Narrative Investment-Risk Disclosure & REIT Investment," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 542-567, February.
    9. Akshita Singh & Shailendra Kumar & Utkarsh Goel & Amar Johri, 2023. "Behavioural biases in real estate investment: a literature review and future research agenda," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-17, December.
    10. Kelvin Jui Keng Tan, 2017. "Why Do Overconfident REIT CEOs Issue More Debt? Mechanisms and Value Implications," Abacus, Accounting Foundation, University of Sydney, vol. 53(3), pages 319-348, September.
    11. Piet Eichholtz & Erkan Yönder, 2023. "CEO–CFO team optimism: Commercial real estate transactions and REIT performance," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(1), pages 103-129, January.
    12. Lai, Shaojie & Liu, Shiang & Wang, Qing Sophie, 2023. "Déjà Vu: CEO overconfidence and bank mortgage lending in the post-financial crisis period," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    13. Avis Devine & Isabelle Jolin & Nils Kok & Erkan Yönder, 2024. "How Gender Diversity Shapes Cities: Evidence from Risk Management Decisions in REITs," Journal of Business Ethics, Springer, vol. 189(4), pages 723-741, February.
    14. Jennifer Kunz & Lara Sonnenholzner, 2023. "Managerial overconfidence: promoter of or obstacle to organizational resilience?," Review of Managerial Science, Springer, vol. 17(1), pages 67-128, January.
    15. Daoju Peng & Jianfu Shen & Simon Yu Kit Fung & Eddie C. M. Hui & Kwokyuen Fan, 2024. "The Valuation Effect and Consequences of Clawback Adoption in Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 274-317, February.
    16. Mahmoud Hijjawi & Chyi Lin Lee & Jufri Marzuki, 2021. "CEO Overconfidence and Corporate Governance in Affecting Australian Listed Construction and Property Firms’ Trading Activity," Sustainability, MDPI, vol. 13(19), pages 1-15, September.

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