Institutional Investors as Monitors of Corporate Diversification Decisions: Evidence from Real Estate Investment Trusts
36 Pages Posted: 10 Oct 2011 Last revised: 10 Aug 2012
Date Written: August 9, 2012
Observing whether diversification adds or destroys value is notoriously difficult, leaving open the question of the degree to which any diversification discount can be affected by management quality and oversight. This study uses the unique setting of real estate investment trusts (REITs), which can diversify over property types as well as locations, to examine this issue. We find that REITs that diversify by investing in more locations tend to be valued lower than REITs with a tighter geographical focus. More importantly, our results suggest that the diversification discount is lower for firms with more institutional ownership, especially institutional types that tend to be more active monitors.
Keywords: Diversification, Corporate Governance, Institutional Investors, REITs
JEL Classification: G31, G34
Suggested Citation: Suggested Citation