Network Connections In Reit Markets

Abstract

Relationships play a central role across the spectrum of real estate transactions. To better understand the role of relationships in real estate markets, we examine how the connectedness of REIT directors is associated with deal making, growth, and profitability. We find strong evidence that REIT connections are positively associated with both deal making and accounting-based measures of profitability; however, those relationships do not translate into better market returns or higher valuations. One explanation of these somewhat contradictory results is that connections also increase firm risk. Preliminary support for this conjecture is found through our examination of each firm's implied cost of equity capital. Specifically, we find increasing connectedness is associated with a higher cost of equity capital. Thus, connections appear to offer both advantages and disadvantages to REIT managers and shareholders.

Publication Date

6-1-2018

Publication Title

Journal of Real Estate Literature

Volume

26

Issue

1

Number of Pages

83-102

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1080/10835547.2018.12090481

Socpus ID

85104992280 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85104992280

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