The Information Content of the 1999 Announcement of Funds from Operation Changes for Real Estate Investment Trusts

16 Pages Posted: 13 Dec 2006

See all articles by Eric James Higgins

Eric James Higgins

Kansas State University - College of Business Administration

Richard Ott

Kansas State University - Department of Accounting

Robert A. Van Ness

University of Mississippi - Department of Finance

Abstract

This study examines the market response to the 1999 announcement of a change in accounting for Funds from Operations (FFO) for Real Estate Investment Trusts (REITs). This change provides an increase in transparency in the accounting statements of REITs regarding the calculation of FFO. An analysis of this announcement finds that shareholder wealth increases but the significance of that increase is questionable. Additionally, an analysis of the adverse selection component of the bid-ask spread finds weak evidence to support the conjecture that the amount of information asymmetry in REIT prices declines after the announcement of the FFO accounting change.

Keywords: Funds from Operations, FFO, REITs, real estate investment trust, bid-ask spread

JEL Classification: M41, M49, L85, L11, L14, K20, K23, G34, G38

Suggested Citation

Higgins, Eric James and Ott, Richard and Van Ness, Robert A., The Information Content of the 1999 Announcement of Funds from Operation Changes for Real Estate Investment Trusts. Journal of Real Estate Research, Vol. 28, No. 3, 2006 , Available at SSRN: https://ssrn.com/abstract=951510

Eric James Higgins (Contact Author)

Kansas State University - College of Business Administration ( email )

117 D Calvin Hall
Manhattan, KS 66506
United States
(785)-532-3936 (Phone)

Richard Ott

Kansas State University - Department of Accounting ( email )

109 Calvin Hall
Manhattan, KS 66506-0502
United States

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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