The Effect of Corporate Governance on Investment: Evidence from Real Estate Investment Trusts (Reits)

43 Pages Posted: 15 Mar 2004

See all articles by Jay C. Hartzell

Jay C. Hartzell

University of Texas at Austin - Department of Finance

Libo Sun

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: July 2005

Abstract

This study investigates the relation between firms' investment choices and various governance mechanisms, using a sample of Real Estate Investment Trusts (REITs). Since REITs provide a relatively accurate measure of Tobin's q, a transparent structure, and generally less asymmetric information about their investment opportunities, they provide an especially good sample to evaluate these issues. We find evidence that the responsiveness of REITs' investment expenditures to their opportunities depends on their corporate governance structures. Within the set of governance mechanisms that we examine, we find particularly strong links between investment behavior and ownership. Specifically, we find that the investment choices of REITs are more closely tied to Tobin's q if they have greater institutional ownership, or lower director and officer stock ownership. These results are consistent with institutional owners monitoring the firm's investment policies, and with high insider ownership allowing managers to follow their own investment agendas.

Keywords: Governance, investment, REITs, institutional investors

JEL Classification: G31, G34

Suggested Citation

Hartzell, Jay C. and Sun, Libo Alice and Titman, Sheridan, The Effect of Corporate Governance on Investment: Evidence from Real Estate Investment Trusts (Reits) (July 2005). Available at SSRN: https://ssrn.com/abstract=516563 or http://dx.doi.org/10.2139/ssrn.516563

Jay C. Hartzell (Contact Author)

University of Texas at Austin - Department of Finance ( email )

1 University Station B6600
Austin, TX 78712
United States
512-471-6779 (Phone)
512-471-5073 (Fax)

HOME PAGE: http://www.mccombs.utexas.edu/faculty/jay.hartzell/

Libo Alice Sun

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department ( email )

United States

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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