The Journal of Real Estate Finance and Economics

, Volume 47, Issue 3, pp 538–563

What is the Relationship Between REIT Governance and Earnings Management?

  • Paul Anglin
  • Robert Edelstein
  • Yanmin Gao
  • Desmond Tsang

DOI: 10.1007/s11146-012-9367-y

Cite this article as:
Anglin, P., Edelstein, R., Gao, Y. et al. J Real Estate Finan Econ (2013) 47: 538. doi:10.1007/s11146-012-9367-y


The empirical corporate finance literature claims that better corporate governance constrains earnings management, while others argue that the unique legal and reporting structure of REITs may reduce the need for such internal corporate governance. Using a sample of publicly traded REITs for the 2004–2008 time period, we examine the relationships amongst corporate governance, accruals earnings management, manipulation of Funds from Operations (FFO), and real earnings management. We find that corporate governance quality is unrelated to accruals earnings management and manipulation of FFO. At first glance, the findings suggest that managers need less internal oversight because of the more transparent reporting structure of REITs. However, we document that REITs engage in significant real activities manipulation for earnings management purposes. Our empirical findings further show that corporate governance characteristics, in particular board size, independence, number of board meetings and audit committee financial expertise, are essential for constraining such activities. Finally, by focusing on a subset of REITs that act in ways which previous research has identified as more susceptible to earnings management activities, we demonstrate that good corporate governance effectively reduces accruals earnings management and manipulation of FFO for these REITs. Overall, our findings indicate that, despite the unique legal and reporting structure, REITs engage in certain forms of earnings management, and that the ability for REITs to manipulate earnings is reduced when corporate governance is more effective.


Real Estate Investment Trusts (REIT) Corporate governance Earnings management FFO 
JEL Classifications G32 G34 M40 

Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  • Paul Anglin
    • 1
  • Robert Edelstein
    • 2
  • Yanmin Gao
    • 3
  • Desmond Tsang
    • 4
  1. 1.University of GuelphGuelphCanada
  2. 2.University of California at BerkeleyBerkeleyUSA
  3. 3.University of AlbertaEdmontonCanada
  4. 4.McGill UniversityMontrealCanada

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