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Meet the “born efficient” financial institutions: Evidence from the boom years of US REITs

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  • Isik, Ihsan
  • Topuz, John C.

Abstract

The theory and evidence demonstrate that new entrants suffer from several ‘liabilities of newness’ and tend to underperform the incumbent established firms. This study, using the Data Envelopment Analysis (DEA) approach and an eleven-year dataset from the 1990s, a period famed with the highest number of REIT entries, analyzes the evolution of cost, allocative, managerial, pure managerial and scale managerial efficiencies of de novo REITs during their life cycle. Our results show that de novo REITs, especially the newest ones, significantly outclass the incumbents in terms of operational efficiency, suggesting that unlike their most brethren in other industries, modern REITs are “born efficient”. Our empirical and anecdotal inquiries point to some ex ante and ex post factors, such as smart regulations, right timing, large entry size, rich congenital experience, access to finance, lower leverage, institutional mentoring and investment, property and geographic focus, public life, innovativeness, and above all, active and self-management as the likely reasons for the distinctiveness of the new REITs. Moreover, under market and competitive pressures, the superior practices of these Schumpeterian entrepreneurs are copied and gradually disseminated across the industry. Evidently, further study of the ecologies, which attract such “born efficient” firms, has promising research, wealth and welfare effects.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:quaeco:v:66:y:2017:i:c:p:70-99
    DOI: 10.1016/j.qref.2017.07.017
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    Cited by:

    1. 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).
    2. Mustafa Kemal Yilmaz & Ali Osman Kusakci & Ekrem Tatoglu & Orkun Icten & Feyzullah Yetgin, 2019. "Performance Evaluation of Real Estate Investment Trusts using a Hybridized Interval Type-2 Fuzzy AHP-DEA Approach: The Case of Borsa Istanbul," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 18(06), pages 1785-1820, November.

    More about this item

    Keywords

    New REITs; Learning by doing; Congenital learning; Entrepreneurship; DEA; Canonical correlation analysis;

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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