Good Growth, Bad Growth: How Effective are REITs' Corporate Watchdogs?

Posted: 25 Aug 2018

See all articles by Ruoran Xu

Ruoran Xu

Independent

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate

Date Written: August 14, 2018

Abstract

The rapid growth of REITs over the last two decades raises and old debate on the existence of scale economies. Out of the 874 growth incidents recorded by individual REITs between 1992 and 2012, we observe that 44.5% of them are sub-optimal, that is they resulted in the acquiring REITs operating at decreasing returns to scale. Large REITs with more free cash flows have a higher propensity to engage in bad growth activities. We find evidence that institutional investors play an effective role in discouraging managerial opportunism and empire building. Independent directors and external creditors, however, do not appear to be effective in discouraging REIT managers from making bad growth decisions.

Keywords: REITs, growth, economies of scale, corporate governance

Suggested Citation

Xu, Ruoran and Ooi, Joseph T. L., Good Growth, Bad Growth: How Effective are REITs' Corporate Watchdogs? (August 14, 2018). Journal of Real Estate Finance and Economics, Vol. 57, No. 1, 2018, Available at SSRN: https://ssrn.com/abstract=3231379

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

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