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The Effect of Corporate Governance on Investment: Evidence from Real Estate Investment Trusts
Author(s) -
Hartzell Jay C.,
Sun Libo,
Titman Sheridan
Publication year - 2006
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/j.1540-6229.2006.00170.x
Subject(s) - real estate investment trust , corporate governance , insider , investment (military) , business , real estate , stock (firearms) , economics , sample (material) , unit investment trust , monetary economics , open ended investment company , accounting , finance , return on investment , microeconomics , production (economics) , mechanical engineering , chemistry , politics , political science , law , chromatography , engineering
This study investigates the relation between firms' investment choices and various governance mechanisms, using a sample of real estate investment trusts (REITs). We find evidence that the responsiveness of REITs' investment expenditures to their opportunities depends on their corporate governance structures. Within the set of governance mechanisms that we examine, we find particularly strong links between investment behavior and ownership. Specifically, we find that the investment choices of REITs are more closely tied to Tobin's q if they have greater institutional ownership or if they have lower director and officer stock ownership. These results are consistent with institutional owners monitoring the firm's investment policies as well as with high insider ownership allowing managers to follow their own investment agendas.