Institutional Common Ownership and Firm Value: Evidence from Real Estate Investment Trusts

Real Estate Economics

64 Pages Posted: 19 Apr 2019 Last revised: 14 May 2020

See all articles by David C. Ling

David C. Ling

University of Florida - Hough Graduate School of Business Administration

Chongyu Wang

Concordia University; University of Florida

Tingyu Zhou

Florida State University

Date Written: November 3, 2019

Abstract

This paper contributes to the ongoing debate about whether and how institutional common ownership (ICO) affects firm behavior. Using a sample of equity REITs, which provide significant advantages for isolating a monitoring channel, we find a robust and positive relation between ICO and REIT firm value. The positive relation between ICO and firm value is driven mainly by motivated investors and becomes stronger when we construct our ICO measures using blockholdings. Our difference-in-differences (DID) analysis, using mergers between institutional investors, suggests a causal relation exists between ICO and firm value. After investigating various channels through which ICO could affect firm behavior, we conclude that asset allocation decisions and performance are the most plausible explanations. Our finding that the monitoring associated with ICO aids managers in their portfolio disposition strategies further supports this conclusion. This enhanced monitoring leads to increased property portfolio returns as well as more geographic diversification.

Keywords: common ownership, firm value, monitoring, asset allocation, REITs

JEL Classification: G11, G23, G32, L22, D82

Suggested Citation

Ling, David C. and Wang, Chongyu and Zhou, Tingyu, Institutional Common Ownership and Firm Value: Evidence from Real Estate Investment Trusts (November 3, 2019). Real Estate Economics, Available at SSRN: https://ssrn.com/abstract=3363931 or http://dx.doi.org/10.2139/ssrn.3363931

David C. Ling

University of Florida - Hough Graduate School of Business Administration ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States
(352) 392-0153 (Phone)
(352) 392-0301 (Fax)

Chongyu Wang (Contact Author)

Concordia University ( email )

1450 Guy Street
Montreal, Quebec H3G 1A1
Canada

University of Florida ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Tingyu Zhou

Florida State University ( email )

821 Academic Way
Tallahassee, FL 32306
United States

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