Capital Distribution Policy and Information Asymmetry: A Real Estate Market Perspective

Posted: 11 Jul 2001

See all articles by David H. Downs

David H. Downs

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate; The Kornblau Institute

Z. Nuray Guner

Middle East Technical University (METU)

Gary A. Patterson

University of South Florida

Abstract

This article examines the relation between the distribution of capital to real estate investors and a market-based measure of information asymmetry. Previous research suggests that information asymmetries decrease as capital is distributed to outside investors. However, little attention has been given to those firms for which the marginal benefit of increased distributions may be small. Our analyses are based on a sample of real estate investment trusts (REITs), which are popularly characterized as high yield investments due to the regulation of a minimum distribution policy. The extent to which information asymmetry is influenced by these regulations, as well as by the opaque nature of the underlying assets, is an interesting empirical question. The results based on several years of data indicate that the perception of asymmetric information is lower for REITs that distribute more capital to their shareholders. A decomposition of yield into income and return-of-capital components reveals no differential effect in information relevance. The insights drawn from the results may be useful in determining the efficacy of real estate capital distribution policies and regulations.

Suggested Citation

Downs, David H. and Guner, Z. Nuray and Patterson, Gary A., Capital Distribution Policy and Information Asymmetry: A Real Estate Market Perspective. Available at SSRN: https://ssrn.com/abstract=254671

David H. Downs (Contact Author)

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284-4000
United States

The Kornblau Institute ( email )

Richmond, VA 23284-4000
United States

Z. Nuray Guner

Middle East Technical University (METU) ( email )

Ankara, 06531
Turkey

Gary A. Patterson

University of South Florida ( email )

Tampa, FL 33620
United States

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