What is the Relationship Between REIT Governance and Earnings Management?

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

23 Scopus Citations
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Author(s)

  • Paul Anglin
  • Robert Edelstein
  • Yanmin Gao
  • Desmond Tsang

Detail(s)

Original languageEnglish
Pages (from-to)538-563
Journal / PublicationJournal of Real Estate Finance and Economics
Volume47
Issue number3
Publication statusPublished - Oct 2013
Externally publishedYes

Abstract

The empirical corporate finance literature claims that better corporate governance constrains earnings management, while others argue that the unique legal and reporting structure of REITs may reduce the need for such internal corporate governance. Using a sample of publicly traded REITs for the 2004-2008 time period, we examine the relationships amongst corporate governance, accruals earnings management, manipulation of Funds from Operations (FFO), and real earnings management. We find that corporate governance quality is unrelated to accruals earnings management and manipulation of FFO. At first glance, the findings suggest that managers need less internal oversight because of the more transparent reporting structure of REITs. However, we document that REITs engage in significant real activities manipulation for earnings management purposes. Our empirical findings further show that corporate governance characteristics, in particular board size, independence, number of board meetings and audit committee financial expertise, are essential for constraining such activities. Finally, by focusing on a subset of REITs that act in ways which previous research has identified as more susceptible to earnings management activities, we demonstrate that good corporate governance effectively reduces accruals earnings management and manipulation of FFO for these REITs. Overall, our findings indicate that, despite the unique legal and reporting structure, REITs engage in certain forms of earnings management, and that the ability for REITs to manipulate earnings is reduced when corporate governance is more effective. © 2012 Springer Science+Business Media, LLC.

Research Area(s)

  • Corporate governance, Earnings management, FFO, Real Estate Investment Trusts (REIT)

Citation Format(s)

What is the Relationship Between REIT Governance and Earnings Management? / Anglin, Paul; Edelstein, Robert; Gao, Yanmin; Tsang, Desmond.

In: Journal of Real Estate Finance and Economics, Vol. 47, No. 3, 10.2013, p. 538-563.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review