Journal of Real Estate Finance and Economics, 21:3, 235±250, 2000
# 2000 Kluwer Academic Publishers. Manufactured in The Netherlands.
Capital Distribution Policy and Information
Asymmetry: A Real Estate Market Perspective*
DAVID H. DOWNS
Terry College of Business, University of Georgia, USA
Z. NURAY GU
Department of Business Administration, Middle East Technical University, Turkey
GARY A. PATTERSON
College of Business Administration, University of South Florida, USA
This article examines the relation between the distribution of capital to real estate investors and a market-based
measure of information asymmetry. Previous research suggests that information asymmetries decrease as capital
is distributed to outside investors. However, little attention has been given to those ®rms for which the marginal
bene®t of increased distributions may be small. Our analyses are based on a sample of real estate investment trusts
(REITs), which are popularly characterized as high yield investments due to the regulation of a minimum
distribution policy. The extent to which information asymmetry is in¯uenced by these regulations, as well as by
the opaque nature of the underlying assets, is an interesting empirical question. The results based on several years
of data indicate that the perception of asymmetric information is lower for REITs that distribute more capital to
their shareholders. A decomposition of yield into income and return-of-capital components reveals no differential
effect in information relevance. The insights drawn from the results may be useful in determining the ef®cacy of
real estate capital distribution policies and regulations.
JEL Classi®cation: G10, G35, R33
Key Words: dividends, information, real estate
The dividend debate focuses on whether dividends are relevant and, if relevant, in what
context they are relevant. Dividends are shown to be irrelevant in a perfect market (Miller
and Modigiliani, 1960), although numerous studies relax the perfect-market assumption.
From a real estate market perspective, dividends are relevant given the capital distribution
regulations imposed on the real estate investment trust (REIT) vehicle.
prima facie evidence of relevance does not address the second point of the debate, which
asks in what context REIT dividends are relevant. This article examines whether dividends
*Address correspondence to: David H. Downs, Terry College of Business, University of Georgia, Athens GA
30602-6255. E-mail: email@example.com; Nuray Gu
ner, E-mail: firstname.lastname@example.org; Gary Patterson,