Insider Ownership and Firm Value: Evidences from Real Estate Investment Trusts

Dice Center Working Paper No. 2004-1

33 Pages Posted: 3 Mar 2004

See all articles by Bing Han

Bing Han

University of Toronto, Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 2004


Real estate investment trust (REIT) provides a unique laboratory to study the relation between insider ownership and firm value. One, A REIT has to satisfy special regulations which weaken alternative mechanisms to control agency problems. Empirically, I find a significant and robust nonlinear relation between Tobin's $Q$ and REIT insider ownership that is consistent with the trade-off between the incentive alignment and the entrenchment effect of insider ownership. Two, many REITs are Umbrella Partnership REITs (UPREITs) which have dual ownership structure. They have both common shares and Operating Partnership Units (OP units). Property owners can contribute their properties to the UPREIT in exchange for OP units. Their capital gains taxes remain deferred as long as they hold onto their OP units and the UPREIT does not sell the properties they contributed. OP units owners are locked in with the firm and have incentive to monitor firm management, but their interests diverge from the common shareholders because their tax bases are much lower. Consistent with the trade-off between positive monitoring effect of OP units and tax-induced agency costs, I find that UPREIT's firm value increases with the fraction of OP units, but the effect is significantly weaker for the UPREITs where insiders hold OP units.

Keywords: insiderer ownersip, firm value, REIT, UPREIT, tax, conflicts of interests , capital gains tax lock-in

JEL Classification: G30, G32

Suggested Citation

Han, Bing, Insider Ownership and Firm Value: Evidences from Real Estate Investment Trusts (January 2004). Dice Center Working Paper No. 2004-1, Available at SSRN: or

Bing Han (Contact Author)

University of Toronto, Rotman School of Management ( email )

Toronto, Ontario M5S 3E6
4169460732 (Phone)

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