Information asymmetry and REITs’ excess dividends: US and European market comparison
| DOI | https://doi.org/10.1108/JPIF-07-2020-0080 |
| Published date | 30 December 2020 |
| Date | 30 December 2020 |
| Pages | 545-560 |
| Author | Giacomo Morri,Federico Palmieri,Emiliano Sironi |
Information asymmetry and
REITs’excess dividends: US and
European market comparison
Giacomo Morri
SDA Bocconi School of Management, Bocconi University, Milano, Italy
Federico Palmieri
Bocconi University, Milano, Italy, and
Emiliano Sironi
Department of Statistical Sciences, Universita Cattolica del Sacro Cuore, Milano, Italy
Abstract
Purpose –The purpose of this study is toanalyze the determinants that lead REITs to pay out more dividends
than the required level to retain their tax-favored status. In particular, the focus is on the effect that information
asymmetry has on REITs’excess dividends distribution.
Design/methodology/approach –A sample of 341 REITs from the USA, France, the UK, Spain, Belgium,
Germany, the Netherlands and Italy has been analyzed for the period 2000–2016. Employing multiple linear
regression models, the effects of information asymmetry, cash flow, size, ROA, leverage and treasury shares on
excess dividends have been explored.
Findings –Results indicate that REITs with greater information asymmetry distribute significantly more
excess dividends, with superior evidence in Europe than in the USA. Regarding other determinants, cash flow
influences excess dividends the most, whereas ROA and common shares repurchase have an inverse
relationship with excess dividends.
Practicalimplications –Thepaper explores the effects of excess dividends distribution on the most relevant
REITs features. The jointanalysis of the European and the US samples allows this study to make a comparison
between the two markets and to identify affinities and differences.
Originality/value –The paper tests whether a proxy of asymmetry information plays a role in affecting the
excess dividends distribution. In contrast to previous researches, it expands the analysis by comparing the US
and European markets to underline any difference in the effect of asymmetry information on excess dividends.
The topic has never been investigated before in relation to the European market.
Keywords Information asymmetrisy, REITs, Dividend policy, Tobin’sQ, Financial markets, Real estate
Paper type Research paper
Introduction
In all the countries where the Real Estate Investment Trusts (REIT) regime has been adopted,
the law requires the distribution of a high percentage of their profits as dividends. The
mandatory dividends distribution is measured by applying a percentage to a set of indicators,
both varying according to different national legislations. In return for this, REITs avoid
paying corporate income taxes and maintain a pass-through tax status or have other
advantages such as a reduced tax rate. Nevertheless, REITs distribute more dividends than
required to retain their tax-favored status, since investors prefer cash flow generating
companies.
This study, following Hardin and Hill (2008) and Lee et al. (2010), explores the
determinants of REITs’excess dividends distribution. In particular, the focus is on the effect
of information asymmetry on the discretionary part of the distribution. A positive
relationship between asymmetric information and excess dividends has already been found
Information
asymmetry
and REITs'
dividends
545
JEL Classification —G34, R30
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 15 July 2020
Revised 30 November 2020
Accepted 1 December 2020
Journal of Property Investment &
Finance
Vol. 39 No. 6, 2021
pp. 545-560
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-07-2020-0080
by the abovementioned studies on the US REITs market during the periods 1999–2005 and
2000–2007, respectively. Closely following Hardin and Hill’s (2008) and Lee et al.’s (2010)
analyses, this study aims at exploring the relationship between information asymmetry and
REITs’excess dividends.
This study enlarges the sample to consider both the US and the European REITs markets
and extends the time frame of the analysis to the period 2000–2016, including the global
financial crisis (GFC) event. On the one hand, the introduction of the European sample allows
this analysis to compare findings of the US market with the European market; on the other
hand, the analysis of the period after the GFC exploded in 2008 affords the possibility of
observing if Hardin and Hill’s (2008) and Lee et al.’s (2010) findings have been altered by the
market recession. Study of the European market, represented by a selection of major
countries (France, the UK, Spain, Belgium, Germany, the Netherlands and Italy), implies the
analysis of different national legislations in order to measure correctly the mandatory part of
dividends pay-out. In contrast, information asymmetry is measured using Tobin’sQratio
(Tobin and Brainard, 1976) as a proxy, according to the previous literature. Even though
Tobin’sQhas been used more often as a performance indicator (see, for example, Wernerfelt
and Montgomery, 1988;Bhagat and Black, 2001), recent literature has criticized its
effectiveness in measuring firms’profitability (Dybvig and Warachka, 2015), rather
emphasizing its direct connection with information asymmetry (Robertson and Wright,
2005;Lee et al., 2010). However, it cannot be denied, as a limit of current analysis, that Tobin’s
Qis only an indirect measure of information asymmetry that is also involved in the literature
to describe firm value indicator. Nevertheless, literature has plenty of examples for the use of
Tobin’sQas a proxy for information asymmetry (Lee et al., 2010;Boudry, 2011;Hardin and
Hill, 2008). Furthermore, the effect of the application of different accounting principles on the
Tobin’sQcalculation has been analyzed carefully, comparing International Accounting
Standards Board (IASB) and Financial Accounting Standards Board (FASB) provisions. In
fact, the application of the fair value method (the former) or the historical cost method to
evaluate asset values (the latter) recorded in the financial statement influences Tobin’sQ
significantly.
A REITs sample composed of 341 REITs (238 from the USA and 103 from Europe,
specifically 33 from France, 27 from the UK, 16 from Spain, 15 from Belgium, 6 from Germany,
3 from the Netherlands and 3 from Italy) and 3,411 firm-year observations was analyzed
employing a multiple linear regression model. The data set was analyzed as a whole and then
with a focus on the European and US samples individually.
The purpose of this paper is to investigate the determinants of REITs’dividends
distribution in the US and the European market. In order to achieve this purpose, the
paper explores the effects of the most relevant REITs features on excess dividends
distribution. Joint analysis of the European and the US samples allows this study to make
a comparison between the two markets and to identify affinities and differences. In more
detail, the aim of the paper is twofold: (1) testing whether a proxy of asymmetry
information plays a role in affecting the excess dividends distribution; (2) comparing the
US and European markets in order to underline any difference in the effect of asymmetry
information on excess dividends. Furthermore, since this study follows Hardin and Hill’s
(2008) and Lee et al.’s (2010) models to analyze the US market, the paper may work as a
continuation of previous studies.
The remainder of the paper is structured as follows. After this brief introduction, a
summary of the existing literature is provided, where models and assumptions
previously used to carry out similar studies will be analyzed. The analysis of the
literature background allows us to introduce the research hypotheses. Then the study will
focus on the data and methodologies used in this paper, followed by the presentation of
empirical results obtained. Finally, concluding remarks will end this analysis.
JPIF
39,6
546
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