Premium
Institutional common ownership and firm value: Evidence from real estate investment trusts
Author(s) -
Ling David C.,
Wang Chongyu,
Zhou Tingyu
Publication year - 2020
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12312
Subject(s) - real estate investment trust , diversification (marketing strategy) , equity (law) , enterprise value , economics , institutional investor , portfolio , real estate , business , value (mathematics) , financial economics , asset (computer security) , monetary economics , finance , corporate governance , marketing , machine learning , political science , computer science , law , computer security
This paper contributes to the ongoing debate about whether and how institutional common ownership (ICO) affects firm behavior. Using a sample of equity real estate investment trusts (REITs), which provide significant advantages for isolating a monitoring channel, we find a robust and positive relation between ICO and REIT firm value. The positive relation between ICO and firm value is driven mainly by motivated investors and becomes stronger when we construct our ICO measures using blockholdings. Our difference‐in‐differences analysis, using mergers between institutional investors, suggests a causal relation exists between ICO and firm value. After investigating various channels through which ICO could affect firm behavior, we conclude that asset allocation decisions and performance are the most plausible explanations. Our finding that the monitoring associated with ICO aids managers in their portfolio disposition strategies further supports this conclusion. This enhanced monitoring leads to increased property portfolio returns, as well as more geographic diversification.