Board Independence, Ownership Structure and Performance: Evidence from Real Estate Investment Trusts

Posted: 16 Aug 2002

See all articles by Chinmoy Ghosh

Chinmoy Ghosh

University of Connecticut - Department of Finance

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law

Abstract

REITs experienced phenomenal growth in the 1990s. Evidence on ownership structure, board composition and performance of REITs, however, is scarce. For REITs, special regulation, including mandatory distribution of income, limits free cash flow, while restrictions on source of income and asset structure results in widely dispersed stock ownership. This makes external monitoring through the takeover market less likely such that alternative monitoring mechanisms, including external directors, must be in place to discourage deviant managerial behavior. Using a simultaneous equation system, we conclude that while outside directors on REIT boards enhance performance, the effect is weak. Consistent with the evidence on other industry sectors, we find that higher CEO stock ownership and control through tenure and chairmanship of the board reduces the representation by outside members on REIT boards, and adversely affects REIT performance. Institutional ownership or blockownership fails to serve as alternate disciplining mechanism to (inadequate) monitoring by outside board members, although their presence seems to enhance performance.

Suggested Citation

Ghosh, Chinmoy and Sirmans, C. F., Board Independence, Ownership Structure and Performance: Evidence from Real Estate Investment Trusts. Available at SSRN: https://ssrn.com/abstract=319906

Chinmoy Ghosh (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law ( email )

Tallahasse, FL 32306
United States
850 644-4076 (Phone)

HOME PAGE: http://www.cob.fsu.edu/rmi

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