Board Independence, Ownership Structure and Performance: Evidence from Real Estate Investment Trusts

For Real Estate Investment Trusts (REITs), mandatory distribution of income limits free cash flow. But, restrictions on source of income and asset structure result in widely dispersed stock ownership, which makes external monitoring through the takeover market less likely. As such, alternative monit...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2003-03, Vol.26 (2/3), p.287-318
Main Authors: Ghosh, Chinmoy, Sirmans, C F
Format: Article
Language:English
Subjects:
Banking industry
Bargaining
Boards of directors
Corporate governance
Economics
Employee stock ownership plans
Employees
ESOP
Finance
Hypotheses
Institutional investments
Investment
Investments
Organizational structure
Ownership
Proxy statements
Real estate
Regulated industries
REITs
Shareholder voting
Stockholders
Studies
Tenure
Trusts
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Summary:For Real Estate Investment Trusts (REITs), mandatory distribution of income limits free cash flow. But, restrictions on source of income and asset structure result in widely dispersed stock ownership, which makes external monitoring through the takeover market less likely. As such, alternative monitoring mechanisms, including external directors, must be in place to discourage deviant managerial behavior. Using a simultaneous equation system, we conclude that while independent directors enhance REIT performance, the effect is weak. Higher CEO stock ownership and control through tenure and chairmanship of the board reduce the representation by outside directors, and adversely affect REIT performance. Institutional ownership or blockownership fails to serve as alternate disciplining mechanism to (inadequate) monitoring by outside board members, although their presence seems to enhance performance.[PUBLICATION ABSTRACT]
ISSN:0895-5638
1573-045X
DOI:10.1023/A:1022932326610