Do REITs Manipulate Their Financial Results Around Seasoned Equity Offerings? Evidence from US Equity REITs


DOI: 10.1007/s11146-009-9227-6

Cite this article as:
Zhu, Y.W., Ong, S.E. & Yeo, W.Y. J Real Estate Finan Econ (2010) 40: 412. doi:10.1007/s11146-009-9227-6


This study addresses two questions: Is there earnings management in the REIT industry around seasoned equity offerings (SEO)? How is earnings management affected by financial and governance factors? Discretionary accruals methods are used to measure earnings management. In addition, the difference between actual and calculated FFO is used to capture the potential FFO manipulation. We examine how these manipulation measures change in the five quarters around SEOs. Moreover, we investigate how a REIT’s earnings management decision is affected by its financial structure, operating style, external auditor and corporate governance. We find clear evidence of FFO manipulation around SEOs, but the extent of earnings management is relatively weaker. We find that REITs issuing SEOs more often are more aggressive in manipulating FFO than earnings. Moreover, there is a notable difference between these two types of financial results manipulation. A mean-reversion trend is found in discretionary accruals, but not for FFO manipulation. Manipulation in financial results is influenced by various factors. A diminished capability to generate cash flow, high leverage, volatile cash flow, frequent SEOs and slack corporate governance are all the features of REITs more likely to manipulate financial results.


REIT Seasoned equity offering Earnings manipulation 

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Department of Real EstateNational University of SingaporeKent RidgeSingapore
  2. 2.Department of Finance and AccountingNational University of SingaporeKent RidgeSingapore

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