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An Empirical Examination of Compensation of REIT Managers

Abstract

Principal-agent literature finds that manager and owner incentives can be aligned with performance contingent contracts. We investigate the compensation of Real Estate Investment Trust (REIT) industry executives. The competitive nature of mortgage and equity markets, in conjunction with the corporate tax exemption available when REITs distribute most of their earnings as dividends, is likely to influence the compensation of REIT managers. Executive compensation is modeled as a function of revenues and unexpected profit. After transforming the model to reduce collinearity and heteroskedasticity, we find compensation to be generally positively related to revenue. We also find unexpected profit to be generally insignificantly related to compensation, but positively related in those cases where it is significant.

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Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 10 (1995)
Issue (Month): 3 ()
Pages: 263-278

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Handle: RePEc:jre:issued:v:10:n:3:1995:p:263-278
Contact details of provider: Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/Email:

Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
Web: http://pages.jh.edu/jrer/about/get.htm Email:


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  • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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  1. K.C. Chan & Patric H. Hendershott & Anthony B. Sanders, 1990. "Risk and Return on Real Estate: Evidence from Equity REITs," NBER Working Papers 3311, National Bureau of Economic Research, Inc.
  2. Reitman, David, 1993. "Stock Options and the Strategic Use of Managerial Incentives," American Economic Review, American Economic Association, vol. 83(3), pages 513-24, June.
  3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  4. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April.
  6. Wang, Ko & Chan, Su Han & Gau, George W., 1992. "Initial public offerings of equity securities *1: Anomalous evidence using REITs," Journal of Financial Economics, Elsevier, vol. 31(3), pages 381-410, June.
  7. Robert Gibbons & Kevin Murphy, 1989. "Relative Performance Evaluation for Chief Executive Officers," Working Papers 628, Princeton University, Department of Economics, Industrial Relations Section..
  8. Benston, George J., 1985. "The self-serving management hypothesis : Some evidence," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 67-84, April.
  9. Brian A. Marts & Fayez A. Elayan, 1990. "Capital Structure and the Cost of Capital for Untaxed Firms: The Case of REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(1), pages 22-39.
  10. Han Kim, E. & Lewellen, Wilbur G. & McConnell, John J., 1979. "Financial leverage clienteles : Theory and evidence," Journal of Financial Economics, Elsevier, vol. 7(1), pages 83-109, March.
  11. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
  12. Anup Agrawal & Anil K. Makhija & Gershon Mandelker, 1991. "Executive Compensation and Corporate Performance in Electric and Gas Utilities," Financial Management, Financial Management Association, vol. 20(4), Winter.
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Cited by:

  1. Piet Eichholtz & Nils Kok & Roger Otten, 2008. "Executive Compensation in UK Property Companies," The Journal of Real Estate Finance and Economics, Springer, vol. 36(4), pages 405-426, May.
  2. Scott, John L. & Anderson, Randy I. & Webb, James R., 2005. "The labor-leisure choice in executive compensation plans: Does too much pay reduce REIT performance?," Journal of Economics and Business, Elsevier, vol. 57(2), pages 151-163.
  3. William G. Hardin, III, 1998. "Executive Compensation in EREITs: EREIT Size is But One Determinant," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 401-410.
  4. Chinmoy Ghosh & C. Sirmans, 2006. "Do Managerial Motives Impact Dividend Decisions in REITs?," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 327-355, May.

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