EVALUATING DETERMINANTS FOR REITS CHOICE OF MANAGEMENT STRUCTURE

Abstract

Motivated by the consistent choice of external management by REITs despite the prevalence of agency problem, this paper aims to identify the causes for REITs to choose a certain management structure to adopt with the characteristics of the firm. A binary logistic regression model is conducted to test the probability of the dependent variable having the value of 1, being internally managed. The research covers a 10 year period from 2007 to 2016 with data covering various aspects of a REIT such as financial performance, size and management inefficiency. Additional regressions were run to examine how the variables change in significance over the 10 year period by splitting the data into 2 categories. Period 1 consists of data from 2007 to 2011, while Period 2 consists of data from 2012 to 2016. Changes in the variables were taken into consideration in the establishment of the determinants and drivers of internalisation. Results show that ROA and PB are consistently significant in affecting the probability of an internal structure, proving that they are the main determinants affecting REITs choice. DY is also seen to be an influential factor affecting the probability of internalisation, and a significant difference between the structures for the shareholders.