Dividends, Values and Agency Costs in REITs
Journal of Real Estate Finance and Economics, Forthcoming
35 Pages Posted: 17 Sep 2009 Last revised: 28 Mar 2011
Date Written: March 24, 2011
Abstract
This study examines the market value of total, mandatory, and discretionary REIT dividends and supports dividend relevance. Consistent with agency cost theory, the results show dividends paid by REITs with greater potential agency conflicts have greater market value. Discretionary dividends paid by REITs with greater cash flow, using an UPREIT structure, and having less independent boards are more highly valued. These results support a strategy of large distributions since the market recognizes and rewards the substitution of dividends for stronger corporate governance structures.
Keywords: dividends, agency costs, market value, governance, reits
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