Comments Welcome Insider Ownership and Corporate Value: Evidences from Real Estate Investment Trusts

Real estate investment trusts (REITs) provides us a unique laboratory to study the relation between insider ownership and ̄rm value, since REITs have to satisfy special regulations which render alternative mechanisms to control agency problems ine®ective. After controlling for unobserved ̄rm heterogeneity, we still ̄nd a signi ̄cant nonlinear relation between REIT insider ownership and Tobin's Q that is positive at low levels and negative at high levels of insider ownership. Additional hypotheses are tested on the Umbrella Partnership REITs (UPREITs) which have two forms of ownership. Property owners can contribute their properties to the UPREIT in exchange for Operating Partnership Units (OP units). Their capital gains taxes remain deferred as long as they hold onto their OP units and the UPREIT does not sell the properties they contributed. The property owners have incentive and expertise to monitor ̄rm management, but their interests diverge from the common shareholders because their tax bases are much lower. Empirically, we ̄nd that Tobin's Q of the UPREITs increases with the amount of OP units held by the property owners. However, too much OP units in the hands of insiders detracts ̄rm value.