Advisor Choice in Asia-Pacific Property Markets
Posted: 18 Jan 2014
Date Written: January 16, 2014
This paper examines advisor choice decisions by publicly traded REITs and listed property companies in Asia-Paciic real estate markets. Using a sample of 168 firms, we find robust evidence that firms strategically evaluate and compare the increased agency costs associated with external advisement against the potential benefits associated with collocating decision rights with locationi specific soft information. Our empirical results reveal real estate companies tend to hire external advisors when they invest in countries: 1) that are more economically and politically unstalbe, 2) whose legal system is based on civil law, 3) where the level of corruption is perceived to be high, and 4) when disclosure is relatively poor. Additionally, we find the probability of retaining an external advisor is directly related to the expected agency costs. Lastly, we find evidence of return premiums in excess of 13% for firms whose organizational structure matches their investment profile. As such, we conclude that the decision to hire an external advisor represents a value relevant trade-off between the costs and benefits of this organizational arrangement.
Keywords: REITs; Advisor choice; International real estate; Soft information
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