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Corporate Governance and Performance: the REIT Effect

  • Eichholtz, Piet

    (Maastricht U)

  • Bauer, Rob
  • Kok, Nils
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REITs offer a natural experiment in corporate governance due to the fact that they leave little free cash flow for management, which reduces agency problems. We exploit a unique and leading corporate governance database to test whether corporate governance matters for the performance of U.S. REITs. We document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies, and a control sample of firms with high corporate real estate ratios, we find a strong and significantly positive relation between our governance index and several performance variables, indicating that the partial lack of a relation between governance and performance in the real estate sector might be explained by a REIT effect.

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File URL: http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6229.2009.00252.x/abstract;jsessionid=B508672B00104C86223BF3667B3C84FC.f02t02
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Paper provided by University of Pennsylvania, Wharton School, Weiss Center in its series Working Papers with number 08-3.

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Date of creation: Mar 2008
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Handle: RePEc:ecl:upafin:08-3
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