The Long-Run Performance of REIT Stock Repurchases

This study investigates the long-horizon performance of open-market stock repurchases for real estate investment trusts (REITs). We develop a new methodology to model the autocorrelation of monthly returns into long-horizon buy-and-hold abnormal return estimators. Serial correlation can introduce bias (autocorrelation bias) because the bid-ask bounce may affect monthly returns for sample firms and non-sample firms in a different fashion. Previous long-horizon event studies have overlooked this source of bias. There is compelling evidence that the market underreacts to the stock repurchase announcements. The evidence holds for different measures of the variance and the effects of cross-correlation of abnormal returns. Results are also robust to the traditional buy-and-hold abnormal return and the wealth relative estimators. We investigate the nature of the underreaction and find strong support for the undervaluation hypothesis.     

Informativeness of performance measures and Chinese executive compensation

We provide evidence on the use of accounting versus stock market performance measures as determinants of Chinese top managers’ compensation over 2001–2007. We theorize and find that (1) accounting returns are weighted more heavily in general than stock returns in determining top executive compensation, (2) state-owned enterprises (SOEs) rely significantly less on stock market returns than do non-SOEs, (3) firms located in high marketization regions rely more heavily on stock market returns to reward managers, and (4) firms with better internal governance quality rely more on stock returns to reward executives. We discuss our findings with particular reference to the Chinese context of our research.     

Changes in REIT Structure and Stock Performance: Evidence from the Monday Stock Anomaly

It is well documented that REITs in the 1990s experienced significant changes in their structure and attracted greater institutional participation. This article finds that REIT stocks with higher institutional holdings perform better on Monday than REITs with lower institutional holdings during the 1990s, but not in the 1980s. Furthermore, REITs that went public in the 1990s are the ones associated with the shift in the Monday return pattern. Our study supports the claim that the change in REIT structure and the increase in institutional participation in the REIT market in the 1990s make REIT stocks behave more like other equities in the stock market.     

Leveraging foreign institutional logic in the adoption of stock option pay among Japanese firms

Research summary : We investigate why Japanese firms have adopted executive stock option pay, which was developed with shareholder‐oriented institutional logic that was inconsistent with Japanese stakeholder‐oriented institutional logic. We argue that Japanese managers have self‐serving incentives to leverage stock ownership of foreign investors and their associated institutional logic to legitimize the adoption of stock option pay. Our empirical analyses with a large sample of Japanese firms between 1997 and 2007 show that when managers have elite education, high pay inequality with ordinary employees, and when firms experience poor sales growth, foreign ownership is more likely associated with the adoption of stock option pay. The study shows the active role of managers in facilitating the diffusion of a new governance practice embodying new institutional logic. Managerial summary : Why have Japanese firms adopted stock option pay for executives? Inconsistent with Japanese stakeholder‐oriented tradition in corporate governance, such pay has been believed to prioritize managerial attention to the interests of shareholders over those of other stakeholders. However, to the extent that shareholders' interests are legitimate in the Japanese context, executives who have self‐serving incentives to adopt such pay can leverage the need to look after shareholders' interest in their firms to legitimize their decisions. In a large sample of Japanese firms, we find that foreign ownership (representing shareholders' interests) is more likely to be associated with the adoption of stock option pay when managers are motivated to receive such pay, such as when they have elite education, high pay inequality with ordinary employees, or poor sales growth. Copyright © 2015 John Wiley & Sons, Ltd.     

经理人股票期权价值的理论及应用

股票期权激励的研究和实践中广泛应用布莱克——斯科尔斯模型进行股票期权的公允价值计价,然而对经理人而言的股票期权价值还要考虑经理人的风险偏好、财富的多元化程度等因素的影响。经理人期权价值不等于公司期权成本的基本理论可以解决及解释在股票期权实践中的一些关键性问题,如期权激励有效性的衡量、激励期权的风险溢价、最优行权价的确定、行权时间的确定。该理论的应用对我国上市公司股权激励的实施也有重要启示。     

The Impact of Employee Stock Option Adoption and Incidence on Productivity: Evidence from U.S. Panel Data

This paper examines the productivity effect of broad‐based and executive stock option programs in adoption year and five subsequent years. The findings include a positive impact on productivity, which is maintained over a five‐year period after adoption for executive plans but diminishes immediately for broad‐based plans. We interpret these findings as evidence of stock option usage being of benefit to organizations. However, to sustain the impact of broad‐based plans options, grants may need to be made with the same frequency as executive option grants.     

Liquidity, Return and Order-Flow Linkages Between REITs and the Stock Market

This article represents the first exploration of liquidity and order flow spillovers across New York Stock Exchange stocks and real estate investment trusts (REITs). Impulse response functions and Granger causality tests indicate the existence of persistent liquidity spillovers running from REITs to non-REITs. Specifically, REIT liquidity indicators are forecastable from non-REIT ones, at both daily and monthly horizons. I also provide evidence of a liquidity premium inherent in REIT returns. While REIT prices appear to be set efficiently in that neither REIT nor non-REIT order flows forecast REIT returns, I find that order flows and returns in the stock market negatively forecast REIT order flows. This result is consistent with the notion that real estate markets are viewed as substitute investments for the stock market, which causes down-moves in the stock market to increase money flows to the REIT market.     

Broad-based Employee Stock Options in US 'New Economy' Firms

This paper compares the performance of 229 'New Economy' firms offering broad-based stock options to that of their non-stock option counterparts. A simple comparison of these firms reveals that the former have higher shareholder returns, Tobin's q and new knowledge generation. Multivariate analysis using panel data also suggests that the adoption of a stock option plan results in higher levels of value added per employee. However, we do not find evidence that these plans result in superior growth in Tobin's q or new knowledge generation.     

A model of person‐pay interaction: how executives vary in their responses to compensation arrangements

A wealth of research indicates that both executive characteristics and incentive compensation affect organizational outcomes, but the literatures within these two domains have followed distinct, separate paths. Our paper provides a framework for integrating these two perspectives. We introduce a new model that specifies how executive characteristics and incentives operate in tandem to influence strategic decisions and firm performance. We then illustrate our model by portraying how executive characteristics interact with a specific type of pay instrument—stock options—to affect executive behaviors and organizational outcomes. Focusing on three individual‐level attributes (executive motives and drives, cognitive frame, and self‐confidence), we develop propositions detailing how executives will vary in their risk‐taking behaviors in response to stock options. We further argue that stock options will amplify the implications of executive ability, such that option‐heavy incentive schemes will increase the performance of talented executives but worsen the performance of low‐ability executives. Our framework and propositions are meant to provide a starting point for future theorizing and empirical testing of the interactive effects of executive characteristics and incentive compensation on strategic decisions and organizational performance. Copyright © 2010 John Wiley & Sons, Ltd.     

Executive turnover in the stock option backdating wave: The impact of social context

While boards are known to react to corporate misconduct by removing the executives responsible, little is known about whether the board's response is shaped by the firm's social context. Using the 2006 stock option backdating scandal, in which firms manipulated stock option grant dates, we examine the impact of two dimensions of social context—the pervasiveness of the misconduct and the media attention to the misconduct. We find that firms implicated later in the backdating scandal are less likely to experience executive turnover than those implicated earlier. We also find that the amount of media attention to backdating at the time a firm is implicated in the scandal increases the likelihood that the firm experiences executive turnover.Copyright © 2012 John Wiley & Sons, Ltd.     

Asset Location,Timing Ability and the Cross‐Section of Commercial Real Estate Returns

This study examines the sensitivity of equity REIT returns to time‐varying MSA allocations of REIT property portfolios. Using a large sample of individual commercial property holdings, we find significant cross‐sectional and time variation in REIT geographic exposures and the ability of these exposures to explain the cross‐section of REIT returns. We further find evidence consistent with REIT managers being able, on average, to time allocation decisions ahead of MSA outperformance. This effect is most prevalent in non‐gateway markets, varies significantly across MSAs and over time, and is concentrated in financially flexible firms with a more diversified geographic portfolio.     

Elective Stock Dividends and REITs: Evidence from the Financial Crisis

In response to the recent financial crisis, the U.S. Government introduced new rules which allow Real Estate Investment Trusts (REITs) to issue elective stock dividends (ESDs), i.e., noncash dividends, to satisfy their distribution requirements. The purported goal of these rules was to provide temporary relief to REITs facing cash flow problems. We investigate how the introduction of these rules affects dividend policy of REITs. Surprisingly, we document that only 17 REITs chose to issue elective stock dividends. We examine the characteristics of these REITs and find that their cash flows are similar to REITs that do not select these dividends. This suggests that cash flow problems are unlikely to be the primary determinant of the ESD issuance decision. Instead, our findings indicate the decision to pay ESDs is related to the level of loans that are close to maturity, REIT size, growth prospects and poor performance during the financial crisis. Furthermore, we find that the same factors determine the ratio, amount and frequency of stock dividends issued by these REITs. We also examine the response of shareholders to ESDs announcements and find positive abnormal returns surrounding these dividend announcements.     

Option Trading and REIT Returns

This article examines the relation between option trading volume and real estate investment trust (REIT) market performance. Specifically, we find that option volume increases are followed by decreases in returns. Furthermore, the portion of option volume that is orthogonal to REIT characteristics drives the observed return predictability relation, thereby suggesting that the return predictability of option trading is (at least partially) attributable to information‐based explanations. Finally, consistent with informed traders favoring option market activities due to short‐sale costs and/or constraints, we find option based return predictability is more evident within REITs than non‐REITs, even though firms within this industry are generally viewed as informationally transparent.     

The Wealth Effects of Property Acquisitions: Evidence from Japanese and Singaporean REITs

This article examines the wealth effects of 228 property acquisition announcements made by REITs publicly traded in Singapore and Japan, which are the two largest REIT markets in Asia. Adopting an aggressive growth‐by‐acquisition strategy, the newly listed REITs acquired a number of properties within a short time period. Despite their regular activities, we observe the acquisition announcements are associated with a significantly positive abnormal increase in shareholder wealth averaging 0.38% in a 5‐day window around the event date. Controlling for the method of payment, buyer's acquisition strategy and seller's relationship with the acquiring REIT, the regression results show that the likely sources of economic gains associated with acquisitions are economies of scale and better management by acquiring firms. We also find strong evidence that the market reacts less favorably to acquisitions involving a portfolio of properties as opposed to a single property and weaker evidence that it reacts less favorably to mixed‐use acquisitions. These findings suggest the presence of premiums on transparency and corporate focus.     

The Determinants of Stock Option Compensation: Evidence from Finland

A new, long, and rich panel data set consisting of all Finnish publicly traded firms is used to study how firm characteristics and stock market developments influence the adoption and targeting of stock option compensation. Stock option adoption is found to be a procyclical phenomenon. Findings from firm‐level econometric analysis often corroborate those based on U.S. data, but important differences also emerge. Findings include: (i) firms with higher market value per employee are more likely to use stock option compensation; (ii) share returns from the past year affect the adoption of targeted stock options, but not broad‐based plans; (iii) our results are consistent with the hypothesis that selective and broad‐based plans arise as solutions to differing monitoring difficulties. Broad‐based schemes are observed when production is human capital‐intensive and employee performance is hard to monitor, while selective schemes are adopted when ownership is dispersed and therefore owners may have weak incentives to monitor management.     

Cooperative R&D and the Value of the Firm

In this paper, we investigate the stock price responses of listed firms in the U.S. markets to announcements of R & D collaborations. We find that abnormal returns of stocks are significantly positive after R & D collaborations are announced. The positive stock price response towards the R & D cooperation initiations can be partially explained by the nature of the collaborations and the characteristics of the participating firms. We also find that the stock prices of rival firms respond negatively to announcements of R & D cooperation. This result seems to support the hypothesis that cooperative R & D improves economic efficiency of the cooperative firms that gain competitive advantage. We do not find evidence supporting the hypothesis that R & D cooperation creates collusive, anticompetitive effects in the product market.     

REIT Dividend Policies and Dividend Announcement Effects During the 2008–2009 Liquidity Crisis

Real estate investment trust (REIT) dividend policies and dividend announcement effects during the 2008–2009 liquidity crisis are examined. Multinomial logit results indicate that REITs with higher market leverage or lower market‐to‐book ratios are more likely to cut dividends, suspend dividends or pay elective stock dividends. These results imply that mitigating going‐concern risk is an important motive for REITs adjusting dividend policies during the crisis and support dividend catering theory where investor demand for dividends impacts corporate dividend policies. Moreover, REITs that cut or suspend dividends experience positive cumulative abnormal returns during the post‐announcement period after controlling for the potential influence from simultaneous funds from operation announcements. The positive market response over the post‐announcement period supports the notion that dividend decisions convey information to investors and is also consistent with the broad catering theory of dividend policy.     

Employment Change after Takeovers: The Role of Executive Ownership

The article examines the impact of executive ownership and other ownership and governance factors on employment change after takeovers. Drawing on a dataset of 235 takeovers, the results show that there is a reduction in employment in just over 50 per cent of the sample. Higher levels of executive share ownership are associated with lower probabilities of employee layoffs post‐takeover, and there is a positive relationship between executive ownership and employment growth. The effect of executive options on employment change is generally insignificant, as are the effects of other features of ownership and governance. The evidence suggests that executives with higher levels of ownership tend to mount takeovers of better‐performing firms and to implement takeovers aimed at growth.     

Symbolic or substantive document? The influence of ethics codes on financial executives' decisions

With the recent spate of scandals resulting from the questionable behavior of corporate leaders, there have been calls for various governance mechanisms including ethics codes to guide executive decision‐making. However, the extent to which ethics codes are actually used by executives when making strategic choices as opposed to being merely symbolic is unknown. We develop our hypotheses by combining stakeholder management theory and the theory of planned behavior, and test them with a survey of 302 senior financial executives (e.g., CFOs, VPs of Finance). We find that financial executives are more likely to integrate their company's ethics code into their strategic decision processes if (a) they perceive pressure from market stakeholders to do so (suppliers, customers, shareholders, etc.); (b) they believe the use of ethics codes creates an internal ethical culture and promotes a positive external image for their firms; and (c) the code is integrated into daily activities through ethics code training programs. The effect of market stakeholder pressure is further enhanced when executives also believe that the code will promote a positive external image. Of particular note, we do not find that pressure from non‐market stakeholders (e.g., regulatory agencies, government bodies, court systems) has a unique impact on ethics code use. Copyright © 2004 John Wiley & Sons, Ltd.     

Shareholder influence over director nomination via proxy access: Implications for agency conflict and stakeholder value

Corporate governance research indicates that corporate boards of directors may be overly beholden to management, which can be detrimental to firm value creation. Drawing upon agency theory and the governance law literature, we examine the effects of a new SEC rule designed to lessen managerial power by increasing large, long-term shareholders' influence in the director nomination process. We predict and find support for a positive overall market reaction to the rule's announcement as well as a greater reaction for firms with characteristics that suggest compromised board independence or greater CEO control. Moreover, we examine the implications of greater shareholder voice for another key stakeholder group, firm bondholders, and find evidence that it is also value increasing. We conclude by discussing important implications for theory and practice. Copyright © 2012 John Wiley & Sons, Ltd.