Corporate governance and performance of REITs: A combined study of Singapore and Malaysia

Abstract

Purpose

This study aims to investigate the relationship between corporate governance (CG) and performance of Real Estate Investment Trust (REITs) in Singapore and Malaysia.

Design/methodology/approach

The CG attributes that contribute best toward R-Index scores are tested followed by analysis of whether R-Index scores contribute toward better performance of the REITs when controlled for growth, firm size and leverage. Regression analysis using structured equation modeling (SEM) is instituted.

Findings

All attributes in the R-Index except management ownership are significantly correlated to R-Index. Regression analysis using SEM reveals that all the three measures of performance are significant. When controlled for growth and firm size, CG mechanisms reduce the impact of losses. However, highly levered firms could be risky for investors despite strong CG mechanisms.

Research limitations/implications

All S-REITs and M-REIT sampled were grouped as one regardless of the country differences, which may have limited the results and findings. The R-Index used to score the CG practices for Asia is still very new.

Practical implications

Findings of the study will help REIT policymakers to update scorecards frequently. Loss-making REITs must emphasize on specific CG attributes to enhance their overall CG scores to gain market confidence and procure financial assistance through better disclosure.

Originality/value

Due to research scarcity on CG effectiveness associated with performance of Asian REITs after the global financial crisis, this study comes as a timely contribution in understanding the relationship between CG and performance of REITs.

Citation

Ramachandran, J., Chen, K.K., Subramanian, R., Yeoh, K.K. and Khong, K.W. (2018), "Corporate governance and performance of REITs: A combined study of Singapore and Malaysia", Managerial Auditing Journal, Vol. 33 No. 6/7, pp. 586-612. https://doi.org/10.1108/MAJ-09-2016-1445