The performance of externally managed REITs in Asia

The performance of externally managed REITs in Asia PurposeThe purpose of this paper is to examine the impact of free cash flow (FCF) on the agency costs and how these FCF and agency costs affect the performance of REITs in Asia. Unlike previous studies that focus on conventional public listed companies and non-regulated industry, the Asian REIT industry being a highly regulated industry provides a new context for further research.Design/methodology/approachThe samples for this study comprise REIT data from four major Asian REIT countries, namely, Japan, Singapore, Hong Kong and Malaysia. These countries are the leaders in Asian REITs which account for 94 percent of the total market capitalization of REITs in Asia. The study period is from 2002 to 2012 using panel data. This study employs GMM method which is more robust compared to previous studies that used pooled ordinary least squares (OLS) and other panel data methods.FindingsThe results indicate that FCF and agency costs persist over time in Asian REITs even though REITs are in a highly regulated industry. The findings also imply that REIT managers face substantial costs when they wish to adjust to the equilibrium level of agency costs, whereby the optimum level is always dynamic and not constant over time and moves with the changes in the determinants of agency costs. These agency costs persist over time and have significant impacts on the performance of REITs in Asia.Research limitations/implicationsThere are limited data in selling, general and administrative expenses in Asian REITs which render only limited use of selling, general and administrative expenses ratio in this empirical study on Asian REITs. For future research, researchers can embark on research studies on issues that might determine the speed of adjustment toward the equilibrium level of agency costs in Asian REITs.Practical implicationsFor REIT regulators in Asia, this empirical study helps to provide useful information for policy planning and formulation in REIT corporate governance; and to transform the inherent satellite structure of the externally managed REIT structure into internally managed REIT structure. For REIT managers and practitioners, this empirical study serves as a reflection for them which helps them to be more aware of the dynamism of FCF and agency costs in REITs; and alert them that these FCF and agency costs persist over time which can have significant impacts on the REIT performance, return on assets and return on equity, REIT value and REIT return, respectively in Asia. Thus, they could consider internalizing their REIT management structure for better and more efficient management in REITs in order to mitigate the agency costs that are persistent over time. As a whole, this empirical study contributes significant benefits to all level of the REIT industry in Asia.Social implicationsThis implies that the REITs in Asia should consider internally managed REIT structure since the agency costs persist over time and there are always dynamic and not constant over time and moves with the changes in the determinants of agency costs. The findings also imply that the regulators in Asian REITs should enforce absolute stringent corporate governance rules and regulations in order to govern the existing inherent satellite structure of the externally managed REITs in Asia.Originality/valueThis empirical study contributes significant benefits to all levels of the REIT industry in Asia and the current limited literature on Asian REITs by examining the impact of FCF and agency costs on the performance of REITs in Asia. This is the first research to embark on FCF and agency costs on REITs in Asia. Furthermore, this study employs GMM method which is more robust compared to previous studies that used pooled OLS and other panel data methods. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Property Investment & Finance Emerald Publishing

The performance of externally managed REITs in Asia

Loading next page...
 
/lp/emerald-publishing/the-performance-of-externally-managed-reits-in-asia-q0Pbdf0Wik
Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1463-578X
DOI
10.1108/JPIF-08-2016-0067
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to examine the impact of free cash flow (FCF) on the agency costs and how these FCF and agency costs affect the performance of REITs in Asia. Unlike previous studies that focus on conventional public listed companies and non-regulated industry, the Asian REIT industry being a highly regulated industry provides a new context for further research.Design/methodology/approachThe samples for this study comprise REIT data from four major Asian REIT countries, namely, Japan, Singapore, Hong Kong and Malaysia. These countries are the leaders in Asian REITs which account for 94 percent of the total market capitalization of REITs in Asia. The study period is from 2002 to 2012 using panel data. This study employs GMM method which is more robust compared to previous studies that used pooled ordinary least squares (OLS) and other panel data methods.FindingsThe results indicate that FCF and agency costs persist over time in Asian REITs even though REITs are in a highly regulated industry. The findings also imply that REIT managers face substantial costs when they wish to adjust to the equilibrium level of agency costs, whereby the optimum level is always dynamic and not constant over time and moves with the changes in the determinants of agency costs. These agency costs persist over time and have significant impacts on the performance of REITs in Asia.Research limitations/implicationsThere are limited data in selling, general and administrative expenses in Asian REITs which render only limited use of selling, general and administrative expenses ratio in this empirical study on Asian REITs. For future research, researchers can embark on research studies on issues that might determine the speed of adjustment toward the equilibrium level of agency costs in Asian REITs.Practical implicationsFor REIT regulators in Asia, this empirical study helps to provide useful information for policy planning and formulation in REIT corporate governance; and to transform the inherent satellite structure of the externally managed REIT structure into internally managed REIT structure. For REIT managers and practitioners, this empirical study serves as a reflection for them which helps them to be more aware of the dynamism of FCF and agency costs in REITs; and alert them that these FCF and agency costs persist over time which can have significant impacts on the REIT performance, return on assets and return on equity, REIT value and REIT return, respectively in Asia. Thus, they could consider internalizing their REIT management structure for better and more efficient management in REITs in order to mitigate the agency costs that are persistent over time. As a whole, this empirical study contributes significant benefits to all level of the REIT industry in Asia.Social implicationsThis implies that the REITs in Asia should consider internally managed REIT structure since the agency costs persist over time and there are always dynamic and not constant over time and moves with the changes in the determinants of agency costs. The findings also imply that the regulators in Asian REITs should enforce absolute stringent corporate governance rules and regulations in order to govern the existing inherent satellite structure of the externally managed REITs in Asia.Originality/valueThis empirical study contributes significant benefits to all levels of the REIT industry in Asia and the current limited literature on Asian REITs by examining the impact of FCF and agency costs on the performance of REITs in Asia. This is the first research to embark on FCF and agency costs on REITs in Asia. Furthermore, this study employs GMM method which is more robust compared to previous studies that used pooled OLS and other panel data methods.

Journal

Journal of Property Investment & FinanceEmerald Publishing

Published: Mar 6, 2017

There are no references for this article.

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off