Stock Market Information and Reit Earnings Management

46 Pages Posted: 1 May 2009

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Xun Bian

Longwood University

Date Written: April 30, 2009

Abstract

This paper investigates the interaction between stock price movement and REIT earnings management. We examine whether information generated from stock trading influences managers' incentives to engage in earnings management. We first test if stock investors are able to detect earnings management by examining whether REITs that are suspected of engaging in earnings management have fundamental values less closely tracked by their stock prices. Consistent with the efficient markets hypothesis, we find that suspected earnings-management firms do not appear to be more mispriced than others. We further inquire into the feedback effect of stock market trading activity on earnings management. Using idiosyncratic volatility as a measure of private information embedded in stock price, we find that negative real earnings management, which allows REITs to circumvent the mandatory dividend payout requirement, is associated with greater information embedded in REIT stock prices. Our result implies that information contained in stock price volatility motivates REIT managers to more actively avoid regulatory costs.

Keywords: REIT, Earnings, Market Efficiency

JEL Classification: G3, G14

Suggested Citation

Ambrose, Brent W. and Bian, Xun, Stock Market Information and Reit Earnings Management (April 30, 2009). Available at SSRN: https://ssrn.com/abstract=1397313 or http://dx.doi.org/10.2139/ssrn.1397313

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Xun Bian

Longwood University ( email )

201 High Street
Farmville, VA 23901
United States
(434) 395-2231 (Phone)
(434) 395-2203 (Fax)

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