Kenneth Yung, Diane DeQing Li and Yi Jian
The purpose of this paper is to examine the effects of managerial decision horizon (MDH) on real estate investment trust (REIT) behavior and performance.
Abstract
Purpose
The purpose of this paper is to examine the effects of managerial decision horizon (MDH) on real estate investment trust (REIT) behavior and performance.
Design/methodology/approach
In this study, the authors expand the number of proxies and measure managerial horizon by CEO age, CEO tenure, cash compensation relative to total compensation, and the amount of vested equity-based compensation to total compensation. To avoid potential measurement error, the authors compute the average ranking score of the four individual measures to determine the overall MDH of a CEO. Cross-sectional time series regressions are then performed on the effects of CEO MDH on REIT policies and performance. The authors also examine if the effect of myopic MDH can be mitigated by good corporate governance. For robustness purpose, the authors also compare the effects of age-related MDH and compensation-related MDH.
Findings
The results show that REITs managed by CEOs with short MDHs have lower levels of asset growth and a lower standard deviation of return on assets. These REITs also have lower debt levels, lower dividend payouts, and hold more cash. The results suggest that short-horizon CEOs have incentives to lower investment risk, default risk, and liquidity risk at the firm level in order to protect personal benefits. CEOs with a short horizon also have a negative impact on REIT performance. The results also show that CEO compensation-related horizon problems are mitigated by corporate governance, but CEO age-related horizon problems are significant and persistent. The results suggest that age-related behavioral biases of the CEO are important determinants of corporate decisions.
Practical implications
The results of this study suggest that the managerial behavioral biases should be considered in understanding firm behavior.
Originality/value
This is the first study that examines the effects of MDH on REIT behavior and performance. The unique regulatory environment of REITs makes them less susceptible to agency problems of free cash flow and thus provides a clearer picture of the effect of MDH. Prior studies focus on the effect of managerial horizon on firm investment activity, this study expands the scope to examine the effects on investment and financial policies. In addition, this study adds to the literature by showing that the effect of age-related horizon problems may not be mitigated by good corporate governance.
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Deqing Diane Li and Kenneth Yung
The purpose of this paper is twofold in examining the international transmission of REIT returns volatility. The first purpose is to add to the literature on whether the real…
Abstract
Purpose
The purpose of this paper is twofold in examining the international transmission of REIT returns volatility. The first purpose is to add to the literature on whether the real estate securities market and the broader equity market are integrated. The second objective of the study is to determine whether geographic risk factors can be transmitted beyond their region of influence.
Design/methodology/approach
The study uses the GARCH(1, 1), EGARCH, and GARCH‐M models.
Findings
The results show that there are significant international spillovers of REIT returns volatility within the Pacific region. The results also show that there are significant volatility transmissions between the Pacific and the Atlantic regions.
Practical implications
The results are consistent with the implication that the real estate sector and the general equity market are integrated such that geographic risk can be transmitted across national borders. The result will have major implications for international investment strategies.
Originality/value
To date, there has been no published study on the international transmission of REIT returns volatility. This study therefore examines whether the conditional variance of REIT returns of a country is affected by volatility transmission across markets in the same region using four Pacific markets.
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Keywords
DeQing Diane Li and Kenneth Yung
Though stock portfolio return autocorrelation is well documented in the literature, its cause is still not clearly understood. Presently, evidence of private information induced…
Abstract
Purpose
Though stock portfolio return autocorrelation is well documented in the literature, its cause is still not clearly understood. Presently, evidence of private information induced stock return autocorrelation is still very limited. The difficulty in obtaining foreign country information by small investors makes the private information of institutional investors in the ADR (American Depository Receipt) market more significant and influential. As such, the ADR market provides a favorable environment for testing the effect of private information on return autocorrelation. The purpose of this paper is to address this issue.
Design/methodology/approach
In this paper, ADRs are sorted annually into three groups based on market equity capitalization. Within each capitalization group, ADRs are further sorted into three groups based on the fraction of shares held by institutional investors. Each ADR is assigned to one of the nine groups and group membership is rebalanced each year. The return autocorrelation of individual ADR securities and ADR portfolios for each group are then calculated.
Findings
The results demonstrate that ADR individual stock and portfolio daily return autocorrelations are positively related to institutional ownership. It is also found that other explanations, such as non‐synchronous trading, bid‐ask spread and volatility of ADR, cannot explain the positive relation between daily return autocorrelations and institutional ownership of ADR.
Originality/value
Since ADR market is more suitable than other markets for testing the role of private information, stronger and clearer results are got accordingly. This paper suggests that trading strategy based on private information of institutional investors can lead to stock return autocorrelation in ADR daily returns.