THE EFFECTS OF CORPORATE GOVERNANCE ON THE PERFORMANCE OF REITS IN ASIA

Abstract

The recent, rapid growth in the Asian REIT industry has triggered concerns about the longterm sustainability of the product in the region. This paper studies, in particular the effects that corporate governance in the form of board independence and ownership structure have on REIT performance. Corporate governance is especially important as not only does it have implications on performance, it can be studied cross geographically without being influenced by other factors such as currency fluctuations. Corporate governance data such as institutional ownership and board independence levels were collected and were regressed against performance to test their effects on REIT performance. The results were generally in line with existing literature. High CEO ownership reduces outside representation on the board, adversely affecting firm performance. The results also show that when firm performance improves, the need for outside representation on the board decreases due to an alignment of interests between managers and shareholders. Results that differ from accepted theory include the CEO doubling up as the chairman of the board being insignificant and a longer tenure of the CEO being beneficial to performance can be attributed to cultural differences or a lack of deviation in management structure. This study serves to inform readers about the effects of corporate governance on REIT performance and arms them with the knowledge to make informed investment and management decisions.