Interest alignment and insider shareholdings in the emerging Asian REIT markets

Abstract

The Asian real estate investment trust (REIT) markets have recently experienced an explosive growth. However, studies on their corporate governance have been limited. This paper aims to fill the gap by testing the effects of board independence and shareownership structure on the performance of sample Asian REITs. Using dynamic panel regressions with instrumental variables on sample REITs in five Asian markets, the relationship between insider shareholdings and board independence is found to be non-linear. Insiders with large shareholding interests do not entrench their controls by selecting fewer and friendly independent directors onto the boards. Consistent with the hypothesis of Morck, Shleifer, and Vishny (1989), large shareholdings by insiders (sponsors) are viewed as a signal of interest alignment with small shareholders. Asian REITs with large controlling insiders outperform other REITs that are not backed by strong insiders' shareholdings.