Stock Market Information and Reit Earnings Management

Journal of Real Estate Research, (2010) 32(1), pp.101-138.

46 Pages Posted: 1 May 2009 Last revised: 23 Apr 2024

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University - Department of Insurance & Real Estate

Xun Bian

University of North Texas

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). Journal of Real Estate Research, (2010) 32(1), pp.101-138., 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 - Department of Insurance & Real Estate ( email )

Smeal College of Business,
Penn State University
University Park, PA US-0-PA 16802
United States
8148670066 (Phone)

HOME PAGE: http://https://sites.psu.edu/brentwambrose/

Xun Bian

University of North Texas ( email )

G. Brint Ryan College of Business
1155 Union Circle #311160
Denton, TX 76203
United States
(940) 369-8309 (Phone)

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