The Nonmonotonic Relation between Insider Ownership and REIT Risk-Taking and Returns

43 Pages Posted: 22 Jun 2007

See all articles by Walter Dolde

Walter Dolde

University of Connecticut - Department of Finance

John D. Knopf

University of Connecticut - Department of Finance

Date Written: June 19, 2007

Abstract

We examine empirically the relations between REIT insider ownership and several measures of performance and management decisions. Three variables exhibit U-shaped or inverted U-shaped profiles, with a critical turn at about 30% ownership. Incentive alignment appears to dominate above 30% ownership; risk aversion and entrenchment dominate from zero to 30%. These phenomena are most pronounced for stock beta and property type concentration. Linear models are inadequate to explain the data, misleadingly indicating the absence of a relationship. Leverage presents an inverted U-shape. G&A expense ratios decline nonlinearly in insider ownership. Institutional ownership is associated with lower leverage, lower expenses, lower ROA, and higher stock returns.

Keywords: REIT, managerial risk aversion, entrenchment, incentive alignment, insider ownership, institutional ownership

JEL Classification: G23, G32

Suggested Citation

Dolde, Walter and Knopf, John D., The Nonmonotonic Relation between Insider Ownership and REIT Risk-Taking and Returns (June 19, 2007). Available at SSRN: https://ssrn.com/abstract=995321 or http://dx.doi.org/10.2139/ssrn.995321

Walter Dolde (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
One Univesity Place
Stamford, CT 06901-2315
United States
203-301-0806 (Phone)

John D. Knopf

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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