The Journal of Real Estate Finance and Economics

, Volume 32, Issue 4, pp 471–493

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

Authors

    • Department of FinanceThe Ohio State University
Article

DOI: 10.1007/s11146-006-6963-8

Cite this article as:
Han, B. J Real Estate Finan Econ (2006) 32: 471. doi:10.1007/s11146-006-6963-8

Abstract

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

REITsUPREITsOwnership structureFirm valueTaxConflict of interests

JEL Classification

G30G32
Download to read the full article text

Copyright information

© Springer Science + Business Media, LLC 2006