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

See all articles by Jay C. Hartzell

Jay C. Hartzell

University of Texas at Austin - Department of Finance

Libo Sun

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: August 9, 2012

Abstract

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

Hartzell, Jay C. and Sun, Libo Alice and Titman, Sheridan, Institutional Investors as Monitors of Corporate Diversification Decisions: Evidence from Real Estate Investment Trusts (August 9, 2012). Available at SSRN: https://ssrn.com/abstract=1941825 or http://dx.doi.org/10.2139/ssrn.1941825

Jay C. Hartzell (Contact Author)

University of Texas at Austin - Department of Finance ( email )

1 University Station B6600
Austin, TX 78712
United States
512-471-6779 (Phone)
512-471-5073 (Fax)

HOME PAGE: http://www.mccombs.utexas.edu/faculty/jay.hartzell/

Libo Alice Sun

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department ( email )

United States

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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