Information Asymmetry and Organizational Structure: Evidence from REITs
Posted: 27 Jul 2017
Date Written: July 10, 2017
We test for the differences in information asymmetry across two organizational forms (external and internal) in the REIT industry. We find significant differences with external REITs being significantly more transparent relative to internal REITs, and these differences are reflected in the loan contract terms and loan syndicate structure of loans made to these two types of REITs. We find that the relatively more transparent externally advised REITs are offered more favorable loan contracts in terms of lower loan rates and lower likelihood of collateral requirement. Further, loans to external REITs have syndicates that are larger in size and the lead lender retains a smaller portion of the loan, reflecting lower information asymmetry.
Keywords: External advisor; Real estate investment trust (REIT); Organizational structure; Loan contract terms; Information opacity; Certification effect
JEL Classification: G20, L85, L100, L22
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