Corporate governance and performance of REITs

Managerial Auditing Journal Corporate governance and performance of REITs: A combined study of Singapore and Malaysia Jayalakshmy Ramachandran, Khoo Kok Chen, Ramaiyer Subramanian, Ken Kyid Yeoh, Kok Wei Khong,

Downloaded by Doctor Jayalakshmy Ramachandran At 04:28 01 October 2018 (PT)

Article information: To cite this document: Jayalakshmy Ramachandran, Khoo Kok Chen, Ramaiyer Subramanian, Ken Kyid Yeoh, Kok Wei Khong, (2018) "Corporate governance and performance of REITs: A combined study of Singapore and Malaysia", Managerial Auditing Journal, https://doi.org/10.1108/MAJ-09-2016-1445 Permanent link to this document: https://doi.org/10.1108/MAJ-09-2016-1445 Downloaded on: 01 October 2018, At: 04:28 (PT) References: this document contains references to 122 other documents. To copy this document: [email protected] The fulltext of this document has been downloaded 38 times since 2018*

Users who downloaded this article also downloaded: ,"Firm- and country-level antecedents of corporate governance compliance and disclosure in MENA countries", Managerial Auditing Journal, Vol. 0 Iss 0 pp. - https://doi.org/10.1108/MAJ-10-2017-1688 Access to this document was granted through an Emerald subscription provided by Token:Eprints:DNZBABIXVNI5TU2GNXJP:

For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.

About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. *Related content and download information correct at time of download.

The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0268-6902.htm

Corporate governance and performance of REITs

Corporate governance

A combined study of Singapore and Malaysia Jayalakshmy Ramachandran and Khoo Kok Chen School of Business, University of Nottingham, Semenyih, Malaysia


Ramaiyer Subramanian Faculty of Business, Multimedia University, Malaka, Malaysia, and

Ken Kyid Yeoh and Kok Wei Khong School of Business, University of Nottingham, Semenyih, Malaysia

Abstract Purpose – This study aims to investigate the relationship between corporate governance (CG) and performance of Real Estate Investment Trust (REITs) in Singapore and Malaysia.

Design/methodology/approach – The CG attributes that contribute best toward R-Index scores are tested followed by analysis of whether R-Index scores contribute toward better performance of the REITs when controlled for growth, firm size and leverage. Regression analysis using structured equation modeling (SEM) is instituted.

Findings – All attributes in the R-Index except management ownership are significantly correlated to RIndex. Regression analysis using SEM reveals that all the three measures of performance are significant. When controlled for growth and firm size, CG mechanisms reduce the impact of losses. However, highly levered firms could be risky for investors despite strong CG mechanisms. Research limitations/implications – All S-REITs and M-REIT sampled were grouped as one regardless of the country differences, which may have limited the results and findings. The R-Index used to score the CG practices for Asia is still very new. Practical implications – Findings of the study will help REIT policymakers to update scorecards frequently. Loss-making REITs must emphasize on specific CG attributes to enhance their overall CG scores to gain market confidence and procure financial assistance through better disclosure. Originality/value – Due to research scarcity on CG effectiveness associated with performance of Asian REITs after the global financial crisis, this study comes as a timely contribution in understanding the relationship between CG and performance of REITs. Keywords Performance, Corporate governance, Shareholders, Real estate investment, R-Index Paper type Research paper

Introduction Since 1990s, most Asian countries have devoted significant efforts to improve corporate governance (CG) standards and practices within their respective capital markets. Lately, such efforts have been extended to Real Estate Investment Trusts (REITs) to facilitate capital inflows into their respective real estate markets. Ooi et al. (2006) contended that Asian REIT markets need better governance and greater transparency for further development. In addition, real estate investors themselves are paying increasing attention to CG, especially since most Asian REITs are externally managed (Lecomte and Ooi, 2012). Governance standards vary considerably across Asian countries. For instance, Jones Lang

Managerial Auditing Journal © Emerald Publishing Limited 0268-6902 DOI 10.1108/MAJ-09-2016-1445


MAJ

LaSalle (2014), the leading global real estate consultants, observed that transparency is not equally distributed among real estate markets in Asia. Even so, driven by strong economic performance and rapid population growth, Asian REIT markets represent a noticeable proportion of the global REITs market, attracting a wide range of institutional investors and achieving 16 per cent of total market capitalization as of December 2013 (Atchison and Yeung, 2014; Bhargava, 2014). The Asia Pacific Real Estate Association (APREA) introduced the first REIT-specific CG index, known as R-Index, to assess the effectiveness of CG practices of REITs (Lecomte and Ooi, 2012). “The prototype was developed by Dr Patrick Lecomte of ESSEC Business School for REITs in Singapore, with the first S-REIT CG index, based on 2008 data, released in 2010. The index was subsequently modified by Dr. Ting Kien Hwa of Universiti Teknologi MARA for Malaysia” (www.APREA.asia). We found that APREA “replicates the category weightings of the S-REIT scoring, with tweaks to the governance factors to account for local regulations and market practice” (in effect, minor adaptations were made for remuneration bands, as well as transparency requirements) when constructing the M-REIT scoring framework (APREA). The scorecard applicable to both S-REITs and M-REITs covers 27 governance attributes spanning eight main categories, inclusive of external and internal CG provisions, such as fees, board matters, related party transactions (RPT), REIT organization, remuneration matters, audit committee, gearing and ownership (Lecomte and Ooi, 2012). Over the past decade, researchers have investigated the relation between CG and REIT performance. Empirical studies have scrutinized a number of CG attributes such as management structure (Howe and Shilling, 1990; McIntosh et al., 1994; Ambrose and Linneman, 2001), ownership structure (Cannon and Vogt, 1995; Friday et al., 1999), board composition (Ghosh and Sirmans, 2003), executive compensation, insider ownership (Capozza and Seguin, 2003; Han, 2006) and the role of institutional investors (Ling and Ryngaert, 1997) independently. Recently, researchers have explored a broader range of attributes by constructing CG indices, rather than focusing on individual governance measures. Some of the indices used were G-Index (Bianco et al., 2007), corporate quotient index of Institutional Shareholder Services (Bauer et al., 2009) and R-Index of APREA (Lecomte and Ooi, 2012). In a review of the literature, it was found that a significant proportion of past empirical work focuses on REITs in the USA and Europe. Few empirical studies have been carried out in Asian markets. One notable exception was the study by Lecomte and Ooi (2012), who examined the link between CG practices and REIT performance for a sample of REITs listed on the Singapore Exchange between 2003 and 2008, after which the Singaporean governance framework underwent a number of changes. Due to the general lack of research on CG effectiveness associated with performance of Asian REITs after the 2008 global financial crisis, our study makes a timely contribution in terms of understanding the relationship between CG and performance of REITs listed in Singapore (S-REITs) and Malaysia (M-REITs). The comparative approach used in this study is appropriate for countries that exhibit similarities in certain cultural and economic aspects (e.g. economic institutions, legal tradition, religion and ethnicity, economic growth and characteristics of real estate sector). The main objective of this study is to determine the relationship between CG standards and performance of REITs in Singapore and Malaysia. This study covers a period of eight years (post-2008 global financial crisis in the Asian region), when the contributions of REITs have become more apparent in the ASEAN region. The structural equation modeling (SEM) analysis shows that R-Index scores are significant predictors of all three measures of performance: return on equity (ROE), return


on asset (ROA) and profitability. In addition, we evidence that the CG–firm performance relationship is stronger when controlled for firm size, as well as firm growth. However, highly levered firms dilute the CG–firm performance relationship. The study implies that at the present stage, REIT managers are using governance mechanisms to reduce agency costs and increase external investment. As most REITs are still new and are yet to break-even, strong CG mechanisms and strict monitoring of CG performance will help to reduce the magnitude of losses for loss-making REITs and motivate the firms to collectively work toward positive levels of performance. It also cautions investors against highly leveraged, newly established REITs as high cost of debt maintenance could still push down the profit line despite stringent governance measures. This may be detrimental to shareholders’ wealth maximization in the long run. This study provides useful insights for international investors, especially institutional investors who demand strong corporate control mechanisms in the foreign firms that they intend to invest. Such investors are concerned about wealth maximization and sustainability. The major contributions of this study are that, first, it emphasizes the need for strong CG framework for growing industries like REITs. Second, it contributes to a better understanding (theoretically and practically) of the importance of CG mechanisms to improve accountability and transparency through scorecards, specifically for loss-making firms, which are at inception or progression stage in developing economies. Theoretical background and hypotheses development The concept of REITs originated in the nineteenth century in New England with the Massachusetts Trust, which allowed corporations to invest in real estate and offered favorable tax treatments to corporations, provided rental income was distributed to their investors (Chan et al., 2002). REITs were first introduced across the USA in 1960 by the US Congress under the auspices of the REIT of 1960 (Newell and Sieracki, 2009). However, the REIT market in the USA has struggled to gain traction due to restrictions on REIT management activities and lack of investor confidence (Whiting, 2007). According to Mullaney (1998), the enactment of Tax Reform Act of 1986 was an important catalyst for REIT development, as it not only provided REITs with more managerial flexibility but also offered tax incentives to owners of private real estate to go public in REIT structure. Brueggeman and Fisher (2011) stated that two landmark offerings significantly contributed to the emergence of the “Modern REIT Era.” First, the initial public offering (IPO) of Kimco Realty, which provided its own property and asset management in a modern vertically integrated structure in 1990, and second, the Taubman Realty offering, which introduced the public umbrella partnership REIT (UPREIT), enabling real estate developers and real estate owners to transfer their real estate assets to REITs in a tax-efficient manner. In the early 1990s, REIT structure gained huge popularity in the USA, as it provided alternative ways to access capital when bank financing was unavailable during the savings and loan crisis (Gordon, 2008). The result was an unprecedented growth in market capitalization of REITs, from $8.74bn in 1990 to $438.07bn in 2006 [National Association of Real Estate Investment Trust (NAREIT), 2014], before the market shrunk during the global financial crisis. According to a survey by the European Public Real Estate Association (EPRA) in 2013, 34 countries worldwide have adopted a REIT-like structure, with the market capitalization of over $1.3tn. In Singapore, the Monetary Authority of Singapore (MAS) first introduced the Guidelines for Property Funds in 1999 to regulate its REIT markets (Koh et al., 2014). However, Singapore REITs (S-REITs) did not take off immediately, due to weak market conditions and lack of tax incentives (Ooi et al., 2006). The first public offering by a trust was



MAJ

undersubscribed, and was subsequently reissued successfully in 2002 finding its way in the Singapore Exchange (Tien and Sze, 2003). The S-REITs market began to blossom between 2002 and 2007, during which 20 REITs were listed and traded on Singapore Exchange due to better tax transparency and refinement of S-REIT regulations (Sons, 2007) before the global financial crisis hit the market in 2008 (Pica, 2011). According to a report published by EPREA (2013), there were 27 REITs with a total market capitalization of $49bn listed on the Singapore Exchange as of May 2013. In 2002, MAS incorporated the Guidelines for Property Funds into the Code of Collective Investment Schemes (the Code), which has become the main regulation for S-REITs (Koh et al., 2014). The Code is a non-statutory regulation that sets out the roles and responsibilities of the managers, trustees, controlling unit holders and advisers. The code also sets restrictions and requirements for investments and activities, valuation of real estate investments, borrowing limits and disclosure rules for S-REITs (Pica, 2011). All S-REITs have to adhere to the listing requirements stipulated in the Securities and Futures Act, as well as in the Singapore Companies Act (Chun, 2006). In addition, REITs are subject to the Code of CG (revised in 2012) and provide principles relating to board composition and performance, remuneration practices, audit requirements and shareholders’ rights and responsibilities. Malaysia was the first country in Asia to launch property trusts with the debut listing of Arab-Malaysian First Property Trust on Kuala Lumpur Stock Exchange in September 1989 (Alias and Soi Tho, 2011). Despite early establishment of property trusts in Malaysia, they were not well received by institutional investors due to unfavorable regulations and lack of tax incentives (Newell et al., 2002). After a sluggish start, the Securities Commission issued the Guidelines on Real Property Investment Trusts (the Guidelines) in 2005 to provide a regulatory framework for the newly introduced REIT structure (Alias and Soi Tho, 2011). As a result, the market witnessed a rapid growth, with ten REITs listed between 2005 and 2007 (Rozali et al., 2007). Notably, Malaysia has pioneered the Islamic REIT market by introducing the Guidelines for Islamic Real Estate Trusts in November 2005. The world’s first Islamic REIT, Al-’Aqar KPJ REIT, was listed on the stock exchange in August 2006. According to EPRA (2013), there were 16 REITs with a total market capitalization of $5.33bn listed on Bursa Malaysia as of April 2013. The emergence of the current M-REITs was made possible by the enactment of the Guidelines in 2005 forming the principal governing set of rules for MREITs (Mohamad et al., 2011). These Guidelines provided tax transparency and increased the gearing ratio to 35 per cent of asset value (Ooi et al., 2006) and a more internationally accepted structure (Alias and Soi Tho, 2011). All M-REITs are listed in the form of unit trusts and are therefore governed by the Securities Commission (Newell et al., 2002). Syariahcompliant REITs must follow the Syariah guidance on investment and business activities set out in the Guidelines for Islamic Real Estate Trusts. In Malaysia, REITs are also governed by The Malaysian Code on CG (2012) that sets out broad principles of good CG, and provides guidelines for companies to establish robust governance and oversight frameworks (Ghazali, 2010). As international investments are increasingly flowing to REITs in Asia, the issue of CG practices and transparency are attracting greater attention from both domestic and foreign investors (Bauer et al., 2009; Tarraf, 2010). Management services typically include making decisions or recommendations in property acquisition and disposal, capital sourcing, dividend distribution and appointments of property manager and other staff, through the monitoring by the company’s board of directors (BOD) and trustee (Howe and Shilling, 1990), for which the manager is compensated with an advisory fee (Moody’s, 2007). The


external manager is reimbursed management fees that include a base fee, performance fee, investment management fee, acquisition fee and divestment fee for managing the trust’s assets. Unit holders purchase REIT shares on public stock exchange and earn dividends from the REIT income distribution. Striewe et al., (2013) argued that external advising is plagued with several agency problems, although it may offer advantages such as cost efficiency and access to professional expertise. As the advisory fee charged is based on the assets under management and property-level cash flows (Howe and Shilling, 1990), this particular form of compensation may induce managers to increase the assets under management at the expense of shareholders (Jenkins, 1980; Sagalyn, 1996). Moreover, the managers may manipulate capital structure decisions through high levels of leverage to pursue their personal goals, because their fees are not affected by interest expenses (Striewe et al., 2013). Self-interested managers are likely to use the excess cash to expand asset base to obtain their individual benefits, rather than distributing it to unit holders (Harford et al., 2008). This principal-agent problem is evident from empirical studies conducted by Feng et al., (2007) and interest rate issues (Brenni, 2014) leading to conflicts of interests (Pattitoni et al., 2012). It is common that the sponsors maintain substantial ownership in REIT after IPO by injecting funds into these REITs (Wong et al., 2013; Prima et al., 2013). Prima et al., (2013) argued that the interrelatedness between the sponsors and managers might rise, as sponsors are able to influence management decisions to acquire the interested real estate assets at the expense of minority unit holders, thereby exacerbating the conflicts of interest (Pica, 2011). According to Brounen et al., (2012), REITs in the USA are governed by the Internal Revenue Code, which stipulates the requirements for companies to be qualified as REITs for tax purposes. It restricts the largest shareholders from owning more than 50 per cent of outstanding REIT shares. REITs in Asia have also adopted similar restrictions on REIT shareholding (Whiting, 2007) partly to protect minority shareholders (Liu, 2010) and/or act as a take-over defense (Ghosh and Sirmans, 2006). Due to the external protection provided to the minority shareholders, they hardly take active interest in overseeing or monitoring the managements’ activities, thereby leaving gaps for managers to act in self-interest (Singh et al., 2004). REITs in Asian markets generally follow the minimum dividend payout requirement of their taxable income, which is similar to the 90 per cent payout ratio in the USA required for qualification as a tax-exempt entity (Brueggeman and Fisher, 2011). The mandatory payout requirement leaves fewer opportunities for managers to access free cash flow and thus help mitigate the free cash flow problem mentioned by Jensen (1986). REIT managers are constantly under pressure to meet payout requirements and use retained earnings to increase the fund size (Erickson and Gau, 1993). As investors tend to prefer REITs with strong dividend yield, managers frequently tap into equity and debt markets to raise more capital for additional financing. Therefore, timely and transparent disclosure of operation activities of REITs is preferred to gain investor confidence and reduce agency problem (Dempsey et al, 2012). In addition, the contention is that although dividend policy could act, as a catalyst in reducing agency cost for REITs, managers may still control the payout decision, which stems from the fact that the payout distribution is subject to REITs’ net earnings, which factors in non-cash expenses. In this way, managers are still able to access significant amounts of cash derived from the difference between net income and free cash flow (Hardin et al., 2009). Klapper and Love (2004) stated that firm-level governance mechanisms can facilitate better operating performance and market valuation by mitigating agency concerns. Moreover, such mechanisms are especially valuable in emerging markets in which



MAJ

the legal and institutional environment tends to be weaker. For REITs in Asian countries, which are mostly loss making, well-structured CG mechanisms are vital to performance (Bauer et al., 2009). We therefore expect REITs to adopt a range of CG mechanisms in an attempt to enhance performance, as well as build investor confidence. Initial studies that link CG and REIT performance (based on individual CG provisions such as board structure, ownership structure and remuneration) failed to produce consistent and conclusive results. For example, Friday et al., (1999) found a negative relationship between insider ownership and market-to-book (MTB) ratio for equity in REITs. Han (2006), however, found a significant positive relationship between insider ownership and Tobin’s Q of equity in REITs. More importantly, researchers have argued that examining individual governance attributes is inadequate in terms of providing a holistic picture due to the complex nature of CG (Boehhren and Odegaard, 2003; Black et al., 2006). Lecomte and Ooi (2012) criticized the researchers for favoring the most obvious and easiest CG attributes such as BOD and audit committee. The empirical work of Cremers and Nair (2005) shows that both internal and external governance attributes are linked to firm performance. Therefore, scrutiny of individual governance provisions will lead to inaccurate research conclusions, because such an approach neglects the complementary relationships between various governance attributes. The introduction of the G-Index by Gompers et al., (2003) attracts substantial research interests using broader CG indices rather than individual governance measures, including those in the REIT literature. Using the G-Index, Bianco et al. (2007) evidenced a weak contribution of CG in enhancing REIT performance. They posited that the result may be partially attributed to the relatively rare occurrences of hostile takeovers in REIT markets and to the unique characteristics of REITs. Bauer et al. (2009), using the Corporate Quotient index of Institutional Shareholder Services, found that governance is significantly related to firm value only for REITs with low payout ratios due to significant managerial compensation, non-property expenses or high levels of capital expenditures. Nevertheless, a number of researchers have questioned the relevance of the academic indices (e.g. G-Index) and commercial indices (e.g. corporate quotient index) for CG research. Daines et al. (2010) argued that commercial indices are not able to provide meaningful information for shareholders and do not produce governance-related results. In addition, other researchers highlighted the issues of measurement error (Larcker et al., 2007) and the relevance of inclusion of CG provisions in commercial indices (Sonnenfeld, 2004). More recently, Chong et al. (2016) examined the impact of CG on the performance of externally managed REITS in Singapore (i.e. S-REITs). Similar to our paper, they also made use of APREA’s R-index to perform their generalized method of moments (GMM) technique. They found that CG has a significant impact on ROA and boards of such REITs could curtail RPT, which, in turn, materially affect the excess returns found for S-REITs. In a related paper, Chong et al. (2017) found that agency concerns are evident in existing externally managed REITs in Asia. More specifically, audit and block ownership reduce returns of Asian REITs, whereas gearing and RPTs are found to enhance both performance and growth of such firms. On a separate development, Prima and Stevenson (2015) investigated the impact of investor protection measures on the valuation, as well as performance of REITs in Japan, Singapore, Hong Kong and Malaysia over a 10-year period (2002-2012). Findings from this study suggest that stronger investor protection is associated with higher firm valuation but the effect on overall REIT performance is weak albeit being positive. More interestingly, they did not find any evidence that REIT sponsors expropriate unit holders’ wealth even when protection is weak. Finally, Downs et al. (2016) showed how RPTs can actually be


value enhancing for minority shareholders of REITs in Hong Kong, Malaysia and Singapore. Similar to the findings of Prima and Stevenson (2015), they found no evidence that Asian REIT managers, as well as sponsors, expropriate wealth from minority shareholders via RPTs. On the contrary, ad hoc acquisitions pipeline from sponsors to their respective REITs is the primary driver of value. These studies have also highlighted the fact that more research is warranted to deepen our understanding of Asian REITs from a governance perspective, a call that our study is responding to. Lecomte and Ooi (2012) argued that both G-Index and corporate quotient index should not be replicated for REITs in Asia, as the indices are Western centric and are thus not suitable for Asian REITs, which are mostly externally managed. Bauer et al. (2009) also stated that concerns regarding the application of corporate quotient index on externally managed Asian REITs should not be overlooked. Following that, Lecomte and Ooi (2012) developed an R-Index that takes into account unique ownership, shareholding and management structures of Asian REITs. They used R-Index to examine the relationship between the CG effectiveness and performance of S-REITs between 2003 and 2008, finding evidence that good CG practices are rewarded by superior stock performance. The authors suggest that further research must be undertaken based on R-Index for other Asian countries and the scores for externally managed REITs from different countries and benchmark against one another. Therefore, our study seeks to apply the R-Index to test whether the good practices of CG will contribute to the better REIT performance in Singapore and Malaysia. Based on above theoretical understanding, the following framework has been developed, as shown in Figure 1. Independent variables (R-Index) are constructed from the guidelines provided by APREA, as used by APREA to structure and manage REIT markets in Asia and to assess their CG practices (APREA, 2012). This analytical framework aims to accommodate the regulatory framework in Asia and consider the unique ownership model, shareholding structure and management structure in Asian REITs; including elements that are


Figure 1. Conceptual model using structure equation modeling


MAJ

overlooked in other academic and commercial indices, such as G-Index and corporate quotient index (Bauer et al., 2009; Lecomte and Ooi, 2012). The R-Index incorporates good practices of CG specifically for Asian REITs, providing a scorecard testing 27 elements structured into eight major categories of external and internal CG mechanisms (Lecomte, 2012). The score composition and weights of the eight categories in R-Index are shown in Table I. Board matters (BM) in the R-Index encompass eight governance factors: (1) board composition; (2) board independence; (3) nominating and remuneration committee; (4) board diversity; (5) CEO/chairman separation; (6) board meeting; (7) disclosure of past/present directorship; and (8) nominating committee and board performance. The resource dependence theory posits that larger board size would contribute to better firm performance by providing a wealth of management know-how, industry network and other necessary resources (Pfeffer and Salancik, 1978). Nevertheless, Jensen (1993) contended that larger board size may adversely affect the decision-making process due to coordination difficulties, further affecting board size and firm performance (Conyon and Peck, 1998). Therefore, the R-Index considers that an optimal board size should be at least 5 but not more than 10. In addition, R-Index favors the REITs with more independent directors, as greater independence may mitigate the agency problem by minimizing managers’ opportunistic behaviors (Jensen and Meckling, 1976) ensuring good performance (Baysinger and Hoskisson, 1990) and lower chances of financial distress (Elloumi and Gueyié 2001). This category also considers board diversity and experience, as boards with more experience and diverse backgrounds are more likely to make well-considered strategic decisions that are crucial to firm success (Wegge et al., 2008; Pahlevan Sharif and Yeoh, 2016). The objective of an Audit Committee (AC) is, primarily, to assess the independence and expertise of members to aid critical processes and decisions (Lorsch and MacIver, 1989). The

Category Board Audit Remuneration REIT organization Fees Related party transactions Gearing Ownership Total

Table I. Score composition and weight of major categories in R-Index Note: (*) after rounding

Maximum Minimum # Elements Core Bonuses Penalties score score in category 16 4 5 11 18 13 5 3 75

2 1 2 3 3 2 0 0 13

1 1 1 1 3 1 1 2 11

18 5 7 14 21 15 5 3 88

1 1 1 1 3 1 1 2 11

19 6 8 15 24 16 6 5 99

Weights in total score (%) (*) 19 6 8 15 25 16 6 5 100

R-Index Mean Minimum Maximum Mode Median Standard deviation Sub-scores Board matters Mean Standard deviation Audit committee Mean Standard deviation Remuneration Mean Standard deviation REIT organization Mean Standard deviation Fees Mean Standard deviation Related party transaction Mean Standard deviation Gearing Mean Standard deviation Ownership Mean Standard deviation 26.16667 19 34 25.5 25.75 3.872983

8.944444 1.722591 3.305556 1.20219 0.277778 0.574513 2.611111 0.916444 4.722222 1.708303 3.472222 1.966426 1.833333 0.707107 1 0

8.5 1.80685

3.5 1.098127

0.277778 0.574513

2.611111 0.916444

4.666667 1.608799

3.361111 2.092041

1.777778 0.646762

1 0

2009

25.69444 18 33 28 26.25 3.670786

2008

1 0

1.75 0.71635

3.875 2.229438

4.675 1.558297

2.55 0.998683

0.25 0.55012

3.3 1.140175

8.9 1.810786

26.3 19 33.5 28.5 26.25 3.693522

2010

1 0

1.772727 0.685344

4.227273 2.245245

4.681818 1.77647

2.727273 1.031957

0.454545 0.595801

3.431818 0.916716

9.090909 1.66645

27.38636 22 33.5 24.5 27 3.33428

2011

1 0

1.916667 0.653863

4.104167 2.095436

4.416667 1.839581

2.791667 1.102533

0.583333 0.775532

3.583333 0.842701

9.229167 1.641706

27.625 20 37.5 30.5 27.5 4.222739

2012

1 0

1.888889 0.751068

3.296296 1.977077

4.296296 1.727934

2.851852 1.09908

0.666667 0.919866

3.740741 0.684588

9.777778 1.711574

28.24074 19.5 36.5 30.5 29 4.652068

2013


1 0

1.851852 0.7698

3.388889 1.777711

4.185185 1.618096

2.888889 1.050031

0.740741 0.902671

3.777778 0.77625

9.833333 1.519109

27.33333 22 33.5 24.5 27 3.5

2014

1 0

1.814815 0.735738

3.148148 1.511589

4.037037 1.505924

2.925926 0.997147

0.777778 0.891556

3.851852 0.632681

9.981481 1.689797

28.27778 19.5 35 30.5 29 4.498575

2015


Table II. R-Index statistics summary for S-REITs

Table III. R-Index statistics summary for M-REITs

R-Index Mean Minimum Maximum Mode Median Standard deviation Sub-scores Board matters Mean Standard deviation Audit committee Mean Standard deviation Remuneration Mean Standard deviation REIT organization Mean Standard deviation Fees Mean Standard deviation Related party transaction Mean Standard deviation Gearing Mean Standard deviation Ownership Mean Standard deviation 18.45455 11.5 29 17.5 17.5 4.756335

7.409091 1.157976 1.5 1.596872 0.636364 1.286291 0.090909 1.221028 4.090909 1.136182 2.636364 1.629278 0.909091 0.831209 1.181818 0.40452

7.454545 1.386624

1.227273 1.438117

0.636364 1.286291

0.090909 1.221028

4.181818 1.07872

2.909091 2.256304

0.909091 0.831209

1.090909 0.301511

2009

18.5 10.5 31 19.5 18.5 5.839521

2008

1.083333 0.288675

1.083333 0.900337

3.416667 1.729862

4 1.044466

0.166667 1.193416

0.791667 1.304857

1.791667 1.484133

7.458333 1.176635

19.79167 14.5 28.5 14.5 18.25 5.015695

2010

1.071429 0.267261

1.214286 0.801784

3.142857 2.070197

3.857143 1.09945

0.214286 1.121714

0.821429 1.26502

1.892857 1.595409

7.642857 1.524525

19.85714 12 28.5 15.5 19 5.641292

2011

1.133333 0.351866

1.466667 0.63994

3 1.647509

3.666667 1.234427

1.266667 1.334523

1.1 1.338976

2.8 1.346954

8.066667 1.998809

22.5 12.5 31 18 22.5 5.700877

2012

1.133333 0.351866

1.6 0.507093

3.066667 1.830951

3.266667 1.498412

1.733333 1.222799

1.166667 1.409998

2.933333 1.387015

8.966667 2.348759

23.86667 14.5 33 24 25 5.872048

2013


1.133333 0.351866

1.666667 0.48795

3.266667 1.75119

3.133333 1.025856

1.666667 1.290994

1.233333 1.237317

3.2 1.398979

9.366667 2.279306

24.9 15 32 18 25.5 5.372549

2014

1.266667 0.457738

1.733333 0.457738

3.2 1.820518

3.066667 0.923245

1.866667 1.245946

1.266667 1.425115

3.266667 1.449959

9.433333 1.888562

25.1 15 32 28 27 5.359238

2015

MAJ


need for establishing oversight boards was recommended by the Cadbury (1992) Committee to function as an additional control mechanism for increased board accountability, consistent with agency theory and ensure best interests of shareholders (Harrison, 1987; Rezaee 2009; Klein, 1998; Laing and Weir 1999). Transparency in terms of disclosing directors’ compensation/remuneration (REM) packages may also mitigate agency problems. Researchers have shown that executive remuneration may be used effectively as a governance mechanism to encourage management to run a firm in the interests of shareholders and enhance the firm performance (Coughlan and Schmidt, 1985; Mehran, 1994; Baber et al., 1999). In the context of REIT Organization (RO), most Asian REITs are plagued with principalagent problems stemming from their externally managed structure (Moody’s, 2007). Moss and Prima (2013) posited that the problem may be further exacerbated by sponsor-satellite ownership model in many Asian REITs. In this regard, Hsieh and Sirmans (1991) showed that externally managed REITs have lower performance compared to internally managed REITs due to the agency costs imposed by external advisors. Cannon and Vogt (1995) stated that externally managed REITs tend to have some form of interrelationship among their respective sponsors, managers and trustees, thereby worsening the agency problem. Although REIT laws in Singapore and Malaysia specify situations where the trustee can play a proactive role to protect the interests of shareholders, trustees are generally passive in externally managed Asian REITs due to their relatedness to the sponsors (Chan et al., 2002). Fees (FEES) focuses on the structure of advisory fees paid to REIT manager, property manager and trustee, as well as the disclosure of conditions for the fee payment. According to the agency theory, the alignment of interests between principal (unit-holders) and agent (managers) can be achieved by using outcome-oriented contracts such as stock options, profit sharing and commissions, which are conditional on a manager’s actual performance (Eisenhardt, 1999). Higher scores are given to REITs that impose more performance-based conditions such as borrowing costs, performance benchmarks and total shareholder returns in their fee structure. Harford (1999) argued that compensation tied to size and scope of the firm may lead to perverse incentives for self-interested managers to increase firm size through unrelated acquisitions, which are not value enhancing. Therefore, R-Index favors REITs that do not compensate their managers for acquisitions and divestments of properties. The R-Index assesses the adequacy of disclosure of RPT, especially the identities of interested parties and their relationships with the REIT, and details of property acquisitions and disposals. Ooi et al. (2011) stated that RPTs are common in Asian REITs due to the sponsor-satellite ownership model and illiquidity of commercial real estate. The empirical work of Wei et al. (1995) suggests that sponsor-satellite ownership model may be subject to greater degree of information asymmetry, as the sponsor controls the REITs and has more

R-index Return on equity Return on assets Profitability Market capitalization Market-to-book ratio Debt to equity

Mean

Median

Maximum

Minimum

Std. dev.

27.26 9.96 6.34 58.33 2,245.07 0.95 48.97

27 9.98 6.53 60 1,457.7 0.99 50.27

37.5 51.6 21.57 144.72 14,678.45 1.81 129.42

18 22.7 12.94 117.5 61.3 0.21 0.14

4.01 8.55 5.05 31.57 2,421.24 0.29 16.81


Table IV. Descriptive statistics for S-REITs


MAJ

pertinent information than the outsider has, leading to higher transaction fees for unit holders or lower returns on their investment. To ensure that RPTs transact at arm’s length, both REIT laws in Singapore and Malaysia require disclosure of RPT policies, with accompanying transaction processes, especially in the event of misalignment of interests among sponsor, manager and unit holders. Past research has shown that external managers tend to expand their asset base through the use of high gearing (GEARING) to enhance their reputation and compensation (Finnerty and Park, 1991; Capozza and Seguin, 2000), as their base fee depends on the amount of assets under management (Ooi, 2010). To prevent high debt levels, both REIT laws in Singapore and Malaysia set out limits on the overall extent of gearing (Brueggeman and Fisher, 2011). Sagalyn (1996) argued that leverage can be a problematic issue when external managers are compensated according to asset under management and property-level cash flow. High gearing may adversely affect cost of capital and net results (Striewe et al., 2013), thereby reducing returns on equity (Ooi et al., 2011). Finally, ownership (OWNERSHIP) measures the disclosure of shareholding in the annual report. Haniffa and Cooke (2002) argued that companies with more disclosure of substantial shareholding tend to attract more investment as it may signal greater market confidence in the company’s future prospects. In addition, the scorecard penalizes any “strategic unitholding” by REIT managers that may result in management entrenchment. The above discussions lead us to the first hypothesis below: H1. The corporate governance attributes developed for R-Index are correlated to RIndex. We use (ROE), ROA and net profit margin as dependent variables. ROE is useful for comparing management performance, financial strategy and return to shareholders of different companies in the same industry for both developed economies and emerging markets (Phan et al., 2003). Return on equity in fact measures shareholders’ wealth maximization. On the other hand, ROA considers the amount of resources used by the management to support the internal operations (Brigham and Houston, 2006). It justifies the managerial contribution/efficiencies in using organizational resources aptly to generate best returns on investment. Despite having considered ROA as one of our chosen performance measures, we also consider net profit margin (an indicator of firm efficiency as it shows how fruitful a firm has been in recording a profit on every business transaction/sale made) as some researchers (see, for instance, Skinner, 1999) contend that, amidst all the other measures used to test firm performance, net income still remains the fundamental criteria for determination of stock returns. The literature also considers other variables that have explanatory power when investigating the relationship between CG and REIT performance (Bauer et al., 2009; Kohl and Schäfer, 2010; Lecomte and Ooi, 2012). These researchers assert that firm performance is also influenced by factors such as firm size, growth opportunities and financial leverage, which are also considered in this study. Firm size (FIRMSIZE) is represented by natural log of market capitalization, which is the total dollar value of a publicly traded company’s outstanding share. It reflects expectations about a company’s future based on perceived future prospects and economic and monetary conditions (Gitman et al., 2011). Investment in firms with larger market capitalization has lower levels of risks (Rashid, 2007) and high firm performance, as large firms outperform small firms with their economies of scale and resilience in poor market conditions (Gleason et al., 2000; Tian and Zeitun, 2007), whereas Durand and Coeurderoy (2001) witness weak relationship between firm size and performance.


Growth opportunities of firm (GROWTH) is measured by MTB ratio, which can be computed by dividing the market value of the firm by the book value of firm. The MTB ratio shows the difference between net assets of the firm and its market valuation (Ceccagnoli, 2009). It is frequently used to show how effectively managers use assets to increase firm value (Lee and Makhija, 2009). Vassalou and Xing (2004) showed that a high MTB ratio is linked to high investment risk and thus correlated with higher returns. Financial leverage of firm (LEVERAGE) is represented by debt-to-equity (D/E) ratio that is obtained by dividing total liabilities by total equity. It measures the extent of debt used to finance companies’ assets (Gitman et al., 2011). A high D/E ratio is expected to have a negative relationship with performance, because high levels of debt may indicate inability to meet payment obligations, exposing firms to insolvency risk (Bromiley, 1991). Based on the above theoretical discussion, we propose the following additional hypotheses: H2. There is a positive relationship between corporate governance (measured by RIndex) and firm performance (measured by return on equity, return on asset and net profit margin). H3. Growth, firm size and leverage positively moderate the corporate governance–firm performance relationship. Methodology The population for this study consists of 27 S-REITs and 15 M-REITs listed on the Singapore Exchange and Bursa Malaysia, respectively, as of December 31, 2015, representing a 100 per cent sample. The eight-year timeframe (2008-2015) is specifically chosen as the most relevant as it represents the timeframe when CG had increasingly become an important agenda for real estate industry after the global financial crisis. Furthermore, the empirical work of Lecomte and Ooi (2012) has already examined the impact of CG on performance of S-REIT between 2003 and 2008. Therefore, this study extends and expands upon their previous work with an analysis of two countries. A total of 183 firm-year observations for S-REITs and 108 for M-REITs from annual reports of the REITs, Bloomberg terminal and online database were tested. Based on the information obtained, scores of CG practices of each REIT using the R-Index scorecard constructed by Lecomte (2012) was tested. Upon analysis of M-REITs, disclosures did not reveal additional information beyond the requirement of APREA. Hence, there seemed to be no need to amend the scorecard at this stage for the M-REITs. However, the differences in the bands for the two countries are accounted for in the data set. The compiled and coded data were analyzed using Microsoft Excel and AMOS for interpretation. The study incorporates both descriptive analysis and inferential analysis. The descriptive statistics provide simple summaries about the data and the measures used in this study (Quinton and Smallbone, 2006). Tests of normality were not required because the data used in this study are not random (Field, 2005). Correlation analysis is performed to determine the strength and direction of the relationship between variables (Pallant, 2011). The correlation coefficients (r) are used to identify the CG mechanisms best contributing toward R-Index scores of the REITs in Malaysia and Singapore. Finally, SEM analysis is performed to investigate the impact of CG on REIT performance (measured by ROE, ROA and profitability). The nature of this study requires SEM, as there are simultaneous linear equations in a path diagram (Figure 1). Based on a sample size of


MAJ

291 (meeting the minimum requirement of sample size in this study), firm performance variables are regressed against lagged total R-Index scores for S-REITs and M-REITs from 2008 through 2015, together with selected control variables, namely, market capitalization, MTB ratio and D/E ratio, which are the proxies for firm size, growth and leverage, respectively, for the corresponding year.


Results, analysis and discussion Descriptive analysis The mean scores for both S-REITs and M-REITs are systematically below the mid-range of R-Index at 38.5 (Figure 2). However, the mean scores gradually improve from 25.69 to 28.27 for S-REITs and from 18.5 to 25.1 for M-REITs, implying that CG practices have improved as the REITs markets have grown and matured (Pica, 2011). The standard of CG practices of S-REITs is higher than that of M-REITs. The results are consistent with a report of the leading real estate consulting firm Jones Lang LaSalle (2014), which shows that the real estate market in Singapore consistently outperforms Malaysia in the Global Real Estate Transparency Index (measured by accounting standards, CG and regulatory sub-indices). The mean scores of eight CG categories are also compared with their maximum possible values to identify the best- and worst-performing categories in R-Index Note that AC, followed by BM and GEARING, is given more importance, whereas Remuneration REM followed by FEES and RO are given less importance by S-REITs. Similar results are obtained for M-REITs. Thus, a similar culture appears in both REIT markets in terms of emphasizing on certain governance mechanisms. The results of both REITs markets lead to an increase in scores for BM, AC, RO, RPT and GEARING over the

Figure 2. Mean R-Index scores of S-REITs and MREIT between 2008 and 2015


period of 2008 through 2015, indicating an encouraging improvement in these CG attributes. The annual scores for OWNER remain largely stable, as changes in REIT ownership are considerably rare in REIT markets (Campbell et al., 2001). The mean scores of FEES decrease from 4.67 in 2008 to 4.03 in 2015 for S-REITs, and from 4.18 in 2008 to 3.067 in 2015 for M-REITs over the study period. A decrease in FEES scores indicates that the fee structure and disclosure of conditions for the fee payment have increasingly become detrimental to the interests of unit holders. It is noteworthy that RPT is the category that recorded the largest standard deviation for both S-REITs and M-REITs, representing a big gap in disclosure of RPTs among the REITs (Ooi et al., 2011). RO consistently ranks low, as most S-REITs and M-REITs lack independence from their sponsor (Wong et al., 2013). Consistently low scores in REMUNERATION also provide evidence that many S-REITs and M-REITs lack adequate disclosure for director and executive remuneration. As the second largest REIT market after Japan in Asia, the mean market capitalization of S-REITs is higher than that of M-REITs. In terms of operating performance, M-REITs show higher mean for performance than S-REITs, despite having a lower mean R-Index score. The minimum ROE and ROA for S-REITs are 22.70 and 12.94, respectively, indicating that some of the S-REITs incurred financial loss during the study period. In contrast, M-REITs have not recorded any negative figures for both ROE and ROA. In addition, M-REITs also have a higher mean MTB ratio than S-REITs, indicating that investors have higher expectations of M-REITs’ outlook and profitability (Gitman et al., 2011). A greater mean debt-to-equity ratio indicates that S-REITs use more debt to finance investment activities (Graham and Smart, 2011). Correlation analysis H1. The corporate governance attributes developed for R-Index are correlated to RIndex. The results of the correlation analysis show that all attributes except ownership are significantly correlated with the total score of R-Index at a significance level of 0.01. This means that not all CG attributes developed for R-Index are correlated to R-Index, leading us to reject H1. RO, BM and AC all appear to have a strong positive relationship with the R-Index indicating that they are the strong determinants of CG in Singapore and Malaysia. RO has the highest correlation with the R-Index (r = 0.804). This key attribute assesses the independence of REIT manager from the sponsor in the external management structure. As explained by Lecomte and Ooi (2012), most CG indices are very Western centric and not suitable for Asian REITs, which are mostly externally managed. Independence of the REIT managers from the sponsor may limit opportunistic behaviors and in turn contribute significantly to better governance mechanisms in the sponsor-satellite ownership model of Asian-REITs. Board matters (BM) has the second highest correlation with the R-Index (r = 0.713). This attribute mainly examines the levels of independence of BOD from a sponsor or manager. This is consistent with the finding of Khanchel (2007) and Hitt et al. (2011), who found that BOD is often viewed as an important mechanism influencing the quality of CG through effective management (Fama and Jensen 1983; Goodstein et al.1994; Erhardt et al., 2003; Agrawal and Chadha, 2005; Rose, 2007; Jurkus et al., 2011) thereby limiting opportunistic behaviors of managers (Fama, 1980). AC has the third highest correlation with the R-Index (r = 0.670). This attribute of R-Index is important to assert the independence and expertise of the audit committees’ member (Davidson et al., 2004). AC plays an important role in CG (Abbott et al., 2003). The



MAJ

Table V. Descriptive statistics for M-REITs

importance of financial literacy of AC members has been increasingly recognized in existing literature (Coates et al., 2007) to prevent financial reporting and accounting fraud through earnings management (Bedard et al., 2004). Ownership (OWNER) is the only attribute not correlated with the R-Index. This attribute measures the disclosure of the top 20 unit holders for each REIT and the corresponding concentration of their respective share ownership. The apparent lack of correlation between OWNER and R-Index can be explained by the five-or-fewer rule, which prohibits the five biggest shareholders from owning more than 50 per cent of outstanding REIT shares. Ghosh and Sirmans (2006) asserted that restriction placed on REIT ownership structure may be detrimental to the rights of shareholders, as it inhibits the formation of large block holders that, in turn, may lead to the entrenchment of incompetent managers. As most S-REITs and M-REITs adhere to the five-or-fewer rule, the relationship between OWNER and R-Index seems weakened. Other governance attributes, namely, GEARING, RPT, REM and FEES, display moderate correlation with the R-Index. This is consistent with the findings of previous empirical studies. Harford et al. (2008) showed that REIT gearing has a positive relationship with CG, whereas Jensen and Meckling (1976) proved that performance-based remuneration is effective in aligning the interests of managers and shareholders. Friday and Sirmans (1998) also showed evidence that disclosure of RPT policies help ensure RPTs remain at arm’s length to protect the best interests of shareholders. Finally, Eisenhardt (1999) claimed that fee structures that are contingent upon managers’ actual performance may help mitigate agency problems. In addition, the degree of association between the R-Index, control variables and dependent variables considered in this study is scrutinized using correlation analysis. As shown in Table VII, the total score for R-Index is positively correlated with FIRMSIZE and GROWTH. This indicates that R-Index total scores tend to increase with large-sized firms and higher MTB ratio. The correlation between R-Index total score and firm size is aligned with previous research, which argues that larger firms need to have better disclosure policies and higher standard of CG practices (Diamond and Verrecchia, 1991), as they are open to more public scrutiny (Harris,1994). In addition, the correlation between R-Index total score and growth opportunities is consistent with the findings of Bauer et al. (2003) and Gompers et al. (2003). Surprisingly, both ROA and ROE are negatively correlated to the R-Index total score for the overall sample, which is statistically significant. As most REITs are still in the red and yet to see profits, we interpret the negative correlation as reduction in losses rather than increase in performance. Therefore, our previous expectations that good practices of CG contribute to better firm performance (reduction of losses) hold good. Furthermore, we carried out regression analysis using SEM to investigate the impact of CG on the performance of sampled REITs. SEM is deemed appropriate as there are simultaneous linear equations featured in our conceptual framework (Figure 1). The results from SEM analysis are shown in Table VIII and Figure 3.

R-index Return on equity Return on assets Profitability Market capitalization Market-to-book ratio Debt to equity

Mean

Median

Maximum

Minimum

Std. dev.

21.92 10.38 6.88 65.833 1,541.34 0.99 49.27

22 9.2 6.1 59.76 652 0.99 49.56

33 35.42 27.88 196.66 15,390.88 1.61 120.56

10.5 0.43 0.34 3.2 74.3 0.55 9.45

5.99 5.61 4.32 29.77 2,336 0.21 24.48


Structural equation modeling analysis


H2. There is a positive relationship between corporate governance (measured by RIndex) and firm performance (measured by return on equity, return on asset and net profit margin). Following the SEM results, CG as represented by R_INDEX is a significant predictor of all three measures of firm performance when controlled by FIRMSIZE, GROWTH and LEVERAGE. Therefore, H2 is accepted. In terms of the explanatory power of the model by the respective firm performance measures, the corresponding figures are demonstrated in Figure 8. All three R2 figures shown suggest that firm performance provides decent explanatory power of the model that we have established. In terms of moderating effects (FIRMSIZE, GROWTH and LEVERAGE on the association of R_INDEX and firm performance), corresponding results are presented in Table IX.

Board Audit Remuneration Org Fees RPT Gearing Owner

R-index

Board

Audit

Remuneration

Org

Fees

RPT

Gearing

0.713** 0.670** 0.358** 0.804** 0.276** 0.474** 0.507** 0.0110

1.0000 0.484** 0.174* 0.546** 0.0930 0.0050 0.385** 0.168*

1.0000 0.0640 0.499** 0.254** 0.0130 0.308** 0.0380

1.0000 0.1280 0.153* 0.231** 0.237** 0.0140

1.0000 0.0250 0.433** 0.416** 0.0090

1.0000 0.174* 0.0340 0.0980

1.0000 0.0060 0.140*

1.0000 0.0170

Notes: **Correlation is significant at the 0.01 level (two-tailed); *correlation is significant at the 0.05 level (two-tailed)

Table VI. Correlations among total scores and subscores of S-REITs and M-REITs

R-Index Firm size Market-to-book ratio Growth opportunities Return on equity Return on asset

0.360** 0.201** 0.0470 0.0280 0.0780

Note: **Correlation is significant at the 0.01 level (two-tailed)

Firm performance measure ROA ROE Profitability

Table VII. Correlation between R-Index, control variables and dependent variables

R2 0.378 0.469 0.361

Table VIII. R-Index of the three measures

MAJ .438**

0.210**

0.218**


0.655**

–0.232** –0 .203** –0.462** –0.471 . **

R 2 = 0.429

–0.253**

–0.373**

0.478** 0.668**

Figure 3. Path diagram with structural model path coefficients

R 2 = 0.378

R 2 = 0.361

0.285**

Note: *Denotes association significant at 0.05

CG attributes R-Index R-Index R-Index Growth Growth Growth Firm size Firm size Table IX. Firm size Direct and Leverage moderating effects of Leverage the independent Leverage

variables based on SEM

R 2 = 0.469

! ! ! ! Moderates Moderates Moderates Moderates Moderates Moderates Moderates Moderates Moderates

R-Index ROE ROA Profitability R-Index and ROE R-Index and ROA R-Index and Profitability R-Index and ROE R-Index and ROA R-Index and profitability R-Index and ROE R-Index and ROA R-Index and profitability

Standardized estimates

p-value

0.655 0.471 0.253 0.373 0.668 0.478 0.285 0.210 0.218 0.438 0.203 0.462 0.232

** ** ** ** ** ** ** ** ** ** ** ** **

Note: **Denotes association/moderation significant at 0.05

H3. Growth, firm size and leverage positively moderate the corporate governance–firm performance relationship. Table IX shows the moderating effects of R_INDEX, FIRMSIZE and LEVERAGE on the association between R_INDEX and all three measures of performance are significant. We therefore accept H3. In fact, the nature of each moderator’s influence on the CG–firm performance relationship is consistent as well with past studies. More specifically:


The moderating influence of GROWTH appears to be positive on the association between R_INDEX and firm performance. The moderating influence of FIRMSIZE appears to be positive on the association between R_INDEX and firm performance. The moderating influence of LEVERAGE appears to be negative on the association between R_INDEX and firm performance.

Overall, our results show a good degree of consistency across all chosen measures of firm performance. The only notable distinctiveness is that the moderating influence of GROWTH appears to be the most significant on the association between R_INDEX and ROA and ROE, whereas FIRMSIZE appears to be the most significant on the association between R_INDEX and Profitability. Even though the relationships between R-Index and firm performance are significant, an interesting observation is that the relationships are all negative. After further inspection of the data that we collected, we found that most REITs in Malaysia and Singapore are relatively new, so a majority of them, particularly in Singapore, is yet to break-even. Hence, our contention is that stronger CG will help REITs in terms of lessening the magnitude of negative performance. Hence, H2 is supported. Moreover, good standards of governance may likely aid REITs in terms of enhancing investor confidence to invest. Based on the agency theory, higher standards of CG practices positively contribute to better performance because managers’ decisions, as well as behavior, are closely monitored and controlled (Beiner et al., 2006). This is despite arguments put forth by Bauer et al. (2010) and Lecomte and Ooi (2012), who suggested that good governance does not influence performance of REITs partly because key elements such as dividend policy, high payout requirements, little free cash flow and other such factors would mitigate agency concerns. In fact, Diamond and Verrecchia (1991) argued that large firms tend to face more regular and comprehensive scrutiny by institutional investors and analyst, and thus need to have better CG practices. Such an assumption is reasonable, as REITs largely rely on capital and debt markets to finance their investment, and thus need to diligently respond to increasing demand by investors for higher transparency and more effective CG mechanisms (Kohl, 2009). Next, we observed that the negative relationship between CG–firm performances is positively moderated by both GROWTH and FIRMSIZE. In this regard, we posit that both GROWTH and FIRMSIZE are closely linked to the amount of cash and/or free cash flow subject to managers’ discretionary control, therefore raising agency concerns. Moreover, higher growth may also be the result of the managers of such REITs making risky investment decisions. All these issues/concerns would be mitigated by the adoption of good CG practices/mechanisms, i.e. through effective monitoring. This is perhaps why the negative relationship between CG and firm performance is lesser when both moderators are considered. These findings provide an indication that the positive effects of having good governance can be clearly observed through firm-specific variables. However, when controlling for leverage, we found that better CG may not help REITs to dilute the negative firm performance but, rather, increase the overall magnitude of negativity. This may be due to the high cost of maintaining the significant amounts of debt taken on by the REITs, further masking the benefits of good CG mechanisms (Bromiley, 1991). In addition to the findings, we have conducted a series of tests on the influence of country on the associations between R-Index and ROE, ROA and profitability. Both moderation and mediation of country influence on these associations were insignificant (Table X and 11). In Table XI, even though the association between R-Index and country influence was significant, the associations between country influence and ROE, ROA and profitability



MAJ

were not. As a result, we concluded that country influence did not mediate the associations between R-Index and ROE, ROA and profitability. The moderation and mediation results implied that there were no significant country differences on how R-index affected ROE, ROA and profitability. This could be due to the fact that as far as REITs are concerned, both Malaysia and Singapore adopt the same governance structure following the APREA guideline. As discussed earlier the minor difference could be seen only in the bands for a couple of items. Conclusion The main objectives of our study were: to assess the quality of CG practices of S-REITs and M-REITs post global crisis and identify the CG attributes that contribute significantly toward R-Index scores; and to test whether CG contributes to better performance of REITs post global financial crisis. Our descriptive analysis shows that CG practices of both S-REITs and M-REITs have improved over the 2008-2015 period as the market size grows bigger. The results indicate that all attributes except ownership help to predict R-Index scores. Second, SEM analysis reveals that R-Index scores are significant predictors of all the three measures of performance, namely, ROE, ROA and net profit margin. CG–firm performance relationships are consistent across the three different measures as they are all negative. The negative relationship between CG and firm performance is because most REITs in our sample are yet to break-even and good standards of governance will help to reduce the magnitude of losses made and possibly enhance investor confidence. In addition, our finding that the CG–firm performance relationship is less negative when moderated by firm growth and size lends further support to our earlier contentions. Finally, it is observed that leverage worsens the

Table X. Results showing the moderation test of country influence on the associations between R-Index and Country influence ROE, ROA and Country influence profitability Country influence

Table XI. Results showing the mediation test of country influence on the association between R-Index and ROE, ROA and profitability

Moderates Moderates Moderates


p-value

0.037 0.042 0.137

0.524 0.474 0.120

R-Index and ROE R-Index and ROA R-Index and profitability

R-Index is associated with country influence Country influence is associated with ROE Country influence is associated with ROA Country influence is associated with profitability


p-value

0.577* 0.059 0.064 0.127

0.001 0.408 0.370 0.077

Notes: *Denotes association significant at 0.05. Associations between R-Index and ROE, ROA and profitability are depicted in Figure 1


negative CG–firm performance relationship. Overall, our study shows that at the present stage, REIT managers are using governance mechanisms to reduce agency costs and increase external investment. Although research was done to investigate the relation between CG and REIT performance, there has been little research in the Asian context. Therefore, our study makes a timely contribution in understanding the relationship between CG measures and performance of REITs listed in both Singapore and Malaysia. Our study also addresses the gap in the real estate literature by examining CG practices of externally managed REITs in Asia. To the best of our knowledge, this is the first study that has empirically deliberated the applicability of APREA scorecard (that was initially meant for Singapore) in Malaysia. Our findings provide useful insight for REIT investors, especially institutional investors who often demand strong corporate control mechanisms in the firms in which they invest especially if such entities are based in developing economies that are perceived to be riskier than developed capital markets. In this regard, our findings suggest that such investor demands are justified, as good CG does matter. The findings of this study will also help REIT policymakers to identify the CG deficiencies in S-REITs and M-REITs, take these issues into consideration in future revisions of REIT regulations and strengthen the scorecard. Theoretical implications and limitations In terms of theoretical implications, we have shown that Asian REITs put more emphasis on certain governance attributes to enhance their overall CG scores. Our findings lend some empirical support to the presumption that good CG mechanisms are adopted primarily to gain market confidence and procure financial support. In this sense, CG practices are used as a signaling mechanism by managers to capital markets. Furthermore, our findings shed light on advantages of the adopting good CG practices for shareholder wealth maximization, as well as reduction, of agency costs followed by strengthening of stakeholder relationships by REITs. This study has several limitations. First, the sample size is small, with only 27 S-REITs and 15 M-REITs listed on Singapore Exchange and Bursa Malaysia, respectively, as of December 31, 2015. This leads us to combine S-REITs sample with M-REITs sample listed to obtain a significant model. A larger sample size can be obtained by increasing the time period being studied and including more Asian REIT markets such as Japan and Hong Kong in the study. In addition, the fact that all S-REITs and M-REIT sampled were grouped regardless of the country differences in CG, standard and economic growth may have limited our results and findings. Second, as our R-Index is the first cross-country measurement instrument that attempts to scrutinize the impact of CG on performance of REITs, it may not be sufficiently reliable or valid to fully capture complex phenomena, such as CG (Daines et al., 2010; Larcker et al., 2007). Even so, our contention here is that, instead of abandoning such an approach, the index should undergo frequent refinement/revision, as well as re-tests in the future, as the industry develops in the future. This would ensure that the instrument remains/made more relevant, up-to-date and comprehensive. More generally, the use of indices is widely accepted within the field of CG (Gompers et al., 2003). References Abbott, L.J., Parker, S., Peters, G.F. and Rama, D.V. (2003), “Audit, non-audit and information technology fees: some empirical evidence”, Accounting & the Public Interest, Vol. 3 No. 1, pp. 1-20.



MAJ

Agrawal, A. and Chadha, S. (2005), “Corporate governance and accounting scandals”, Journal of Law and Economics, Vol. 48 No. 2, pp. 371-406. Alias, A. and Soi Tho, C.Y. (2011), “Performance analysis of real estate investment trusts: comparison between M-Reits and UK-Reits”, Journal of Surveying, Construction and Property, Vol. 2 No. 2011, pp. 38-61. Ambrose, B.W. and Linneman, P.D. (2001), “Real estate investment trust organizational structure and operating characteristics”, Journal of Real Estate Research, Vol. 21 No. 3, pp. 141-162. APREA (2012), “Asian real estate investment trusts have largely outperformed Asian equities, in particular since the GFC, says APREA”, [online], available at: www.aprea.asia (accessed 22 June 2014). Atchison, K. and Yeung, V.S. (2014), “The impact of real estate investment trusts on Asian economics”, www. aprea.asia/file/The%20Impact%20of%20REITs%20on%20Asian%20Economies.pdf (accessed 30 July 2015). Baber, W.R., Janakiraman, S.N. and Kang, S.H. (1999), “Investment opportunities and the structure of executive compensation”, Journal of Accounting and Economics, Vol. 21 No. 3, pp. 297-318. Bauer, R., Eichholtz, P. and Kok, N. (2010), “Corporate governance and performance: the real estate investment trust effect”, Real Estate Economics, Vol. 38 No. 1, pp. 1-29. Baysinger, B. and Hoskisson, R. (1990), “The composition of boards of directors and strategic controls: Effects on corporate strategy”, Academy of Management Review, Vol. 15 No. 1, pp. 72-87. Bedard, J., Chtourou, S.M. and Courteau, L. (2004), “The effect of audit committee expertise, independence, and activity on aggressive earnings management”, Auditing: A Journal of Practice and Theory, Vol. 23 No. 2, pp. 13-35. Beiner, S., Drobetz, W., Schmid, M.M. and Zimmermann, H. (2006), “An integrated framework of corporate governance and firm valuation”, European Financial Management, Vol. 12 No. 2, pp. 249-283. Bhargava, M. (2014), “Asian REITs delivering sound investment credential”, [online]. Available at: www.apngroup.com.au/ (accessed 8 August 2014). Bianco, C., Ghosh, C. and Sirmans, C. (2007), “The impact of corporate governance on the performance of real estate investment trusts”, The Journal of Portfolio Management, Vol. 33 No. 5, pp. 175-191. Black, B.S., Jang, H. and Kim, W. (2006), “Does corporate governance predict firms’ market values? Evidence from Korea”, Journal of Law, Economics, and Organization, Vol. 22 No. 2, pp. 366-413. Boehhren, O. and Odegaard, B. (2003), “Governance and performance revisited”, ECGI Working Paper Series in Finance, Vol. 28 No. 2003. Brenni, P.A. (2014), “Corporate governance and Capital structure decisions of UK listed real estate companies”, Research Journal of Finance and Accounting, Vol. 5 No. 1, pp. 69-88. Bromiley, P. (1991), “Testing a causal model of corporate risk taking and performance”, Academy of Management Journal, Vol. 34 No. 1, pp. 37-59. Brounen, D., Kok, N. and Ling, D.C. (2012), “An analysis of shareholder composition and returns in volatile markets: the case of international real estate investment trusts”, Journal of International Money and Finance, Vol. 31 No. 7, pp. 1867-1889. Brueggeman, W.B. and Fisher, J.D. (2011), Real Estate Finance and Investment, 14th Ed., McGraw Hill, New York, NY. Cadbury, A. (1992), Report of the Committee on the Financial Aspects of Corporate Governance, Gee Publishing, London. Campbell, R., Ghosh, C. and Sirmans, C.F. (2001), “The information content of method of payment in mergers: evidence from real estate investment trust (REITs)”, Real Estate Economics, Vol. 29 No. 3, pp. 361-387.


Cannon, S.E. and Vogt, S. (1995), “Real estate investment trusts and their management: an analysis of organizational structure, performance and management compensation”, Journal of Real Estate Research, Vol. 10 No. 3, pp. 297-317. Capozza, D.R. and Seguin, P.J. (2000), “Debt, agency, and management contracts in real estate investment trusts: the external advisor puzzle”, The Journal of Real Estate Finance and Economics, Vol. 20 No. 2, pp. 91-116. Capozza, D.R. and Seguin, P.J. (2003), “Inside ownership, risk sharing and Tobin’s q-Ratios: evidence from real estate investment trusts”, Real Estate Economics, Vol. 31 No. 3, pp. 367-404. Ceccagnoli, M. (2009), “Appropriability, preemption, and firm performance”, Strategic Management Journal, Vol. 30 No. 1, pp. 81-98. Chan, S.H., Erickson, J. and Wang, K. (2002), Real Estate Investment Trust: Structure, Performance, and Investment Opportunities, Oxford University Press, Oxford. Chong, W.L., Ting, K.H. and Cheng, F.F. (2016), “The impacts of corporate governance on the performance of REITs in Singapore”, Journal of Real Estate Literature, Vol. 24 No. 2, pp. 317-344. Chun, J. (2006), “Are real estate investment trust s built to be green? An environmental analysis of real estate investment trust law in Singapore”, Singapore Academy of Law Journal, Vol. 19 No. 1, [online], available at: http://ssrn.com/abstract=1000736 (accessed 29 August 2015). Coates, D.J., Marais, M.L. and Weil, R.L. (2007), “Audit committee financial literacy: a work in progress”, Journal of Accounting, Auditing and Finance, Vol. 22 No. 2, pp. 175-194. Conyon, M. and Peck, S. (1998), “Board control, remuneration committees, and top management compensation”, Academy of Management Journal, Vol. 41 No. 2, pp. 146-157. Coughlan, A.T. and Schmidt, R.M. (1985), “Executive compensation, management turnover, and firm performance: an empirical investigation”, Journal of Accounting & Economics, Vol. 7 Nos 1/3, pp. 43-66. Cremers, K.J.M. and Nair, V.B. (2005), “Governance mechanisms and equity prices”, The Journal of Finance, Vol. 60 No. 6, pp. 2859-2894. Daines, R., Gow, I.D. and Larcker, D.F. (2010), “Rating the ratings: how good are commercial governance ratings?”, Journal of Financial Economics, Vol. 98 No. 3, pp. 439-461. Davidson, W.N. III, Xie, B. and Xu, W. (2004), “Market reaction to voluntary announcements of audit committee appointments: the effect of financial expertise”, Journal of Accounting and Public Policy, Vol. 23 No. 4, pp. 279-293. Dempsey, S.J., Harrison, D.M., Luchtenberg, K.F. and Seiler, M.J. (2012), “Financial opacity and firm performance: the readability of real estate investment trust annual reports”, The Journal of Real Estate Finance and Economics, Vol. 45 No. 2, pp. 450-470. Diamond, D. and Verrecchia, R. (1991), “Disclosure, liquidity, and the cost of Capital”, Journal of Finance, Vol. 46 No. 4, pp. 1325-1360. Durand, R. and Coeurderoy, R. (2001), “Age, order of entry, strategic orientation, and organizational performance”, Journal of Business Venturing, Vol. 16 No. 5, pp. 471-494. Eisenhardt, K.M. (1999), “Making fast strategic decisions in high-velocity environments”, Academy of Management Journal, Vol. 32 No. 3, pp. 543-576. Elloumi, F. and Gueyié, J.P. (2001), “Financial distress and CG: an empirical analysis”, CG: Corporate Governance: The International Journal of Business in Society, Vol. 1 No. 1, pp. 15-23. Erhardt, L.N., Werbel, J.D. and Shrader, C.B. (2003), “Board of director diversity and firm financial performance”, Corporate Governance: An International Review, Vol. 11 No. 2, pp. 102-110. Fama, E.F. (1980), “Agency problems and the theory of the firm”, Journal of Political Economy, Vol. 88 No. 2, pp. 288-307. Fama, E.F. and Jensen, M.C. (1983), “Separation of ownership and control”, Journal of Law and Economics, Vol. 26 No. 2, pp. 301-325.



MAJ

Feng, Z., Ghosh, C. and Sirmans, C.F. (2007), “On the Capital structure of real estate investment trust (REITs)”, The Journal of Real Estate Finance and Economics, Vol. 34 No. 1, pp. 81-105. Field, A. (2005), Discovering Statistics Using SPSS, 2nd ed., Sage, London. Finnerty, J.E. and Park, H.Y. (1991), “Does managerial compensation affect real estate investment trust characteristics?”, ORER Letter Series, pp. 8-9. Friday, H.S., Sirmans, G.S. and Conover, C.M. (1999), “Ownership structure and the value of the firm: the case of real estate investment trusts”, Journal of Real Estate Research, Vol. 17 No. 1, pp. 71-90. Ghazali, N.A.M. (2010), “Ownership structure, corporate governance and corporate performance in Malaysia”, International Journal of Commerce and Management, Vol. 20 No. 2, pp. 109-119. Ghosh, C. and Sirmans, C.F. (2003), “Board independence, ownership structure and performance: evidence from real estate investment trust”, The Journal of Real Estate Finance and Economics, Vol. 26 Nos 2/3, pp. 287-318. Ghosh, C. and Sirmans, C.F. (2006), “Do managerial motives impact dividend decisions in real estate investment trusts?”, The Journal of Real Estate Finance and Economics, Vol. 32 No. 3, pp. 327-355. Gitman, L.J., Joehnk, M.D. and Smart, S.B. (2011), Fundamentals of Investing, 11th ed., Pearson Education, Boston. Gleason, K.C., Mathur, L.K. and Mathur, I. (2000), “The interrelationship between culture, Capital structure, and performance: evidence from European retailers”, Journal of Business Research, Vol. 50 No. 2, pp. 185-191. Gompers, P.A., Ishii, J.L. and Metrick, A. (2003), “Corporate governance and equity prices”, Quarterly Journal of Economics, Vol. 118 No. 1, pp. 107-155. Goodstein, J., Gautam, K. and Boeker, W. (1994), “The effects of board size and diversity on strategic change”, Strategic Management Journal, Vol. 15 No. 3, pp. 241-250. Gordon, M. (2008), The Complete Guide to Investing in REITs: Real Estate Investment Trusts: How to Earn High Rates of Return Safely, Atlantic Publishing Company. Han, B. (2006), “Insider ownership and firm value: evidence from real estate investment trusts”, The Journal of Real Estate Finance and Economics, Vol. 32 No. 4, pp. 471-493. Haniffa, R.M. and Cooke, T.E. (2002), “Culture, corporate governance and disclosure in Malaysian corporations”, Abacus, Vol. 38 No. 3, pp. 317-349. Hardin, W., Highfield, M., Hill, M. and Kelly, G.W. (2009), “The determinants of real estate investment trust cash holdings”, The Journal of Real Estate Finance and Economics, Vol. 39 No. 1, pp. 39-57. Harford, J. (1999), “Corporate cash reserves and acquisitions”, Journal of Finance, Vol. 54 No. 6, pp. 1969-1997. Harford, J., Mansi, S. and Maxwell, W. (2008), “Corporate governance and firm cash holdings”, Journal of Financial Economics, Vol. 87 No. 3, pp. 535-555. Harris, L.E. (1994), “Minimum price variations, discrete bid-ask spreads, and quotation sizes”, Review of Financial Studies, Vol. 7 No. 1, pp. 149-178. Harrison, J.R. (1987), “Strategic use of corporate board committees”, Californian Management Review, Vol. 30 No. 1, pp. 109-125. Hitt, M.A., Ireland, R.D. and Hoskisson, R.E. (2011), Strategic Management: Competitiveness and Globalization, 9th Ed., West Educational Publishing, St. Paul. Howe, J.S. and Shilling, J.D. (1990), “Real estate investment trust advisor performance”, Real Estate Economics, Vol. 18 No. 4, pp. 479-500. Hsieh, C.H. and Sirmans, C.F. (1991), “Real estate investment trusts as captive-financing affiliates: impact on financial performance”, The Journal of Real Estate Research, Vol. 6 No. 2, pp. 179-189. Jenkins, J.W. (1980), “Incentive compensation and real estate investment trust financial leverage and asset risk”, Financial Management, Vol. 9 No. 1, pp. 81-87.


Jensen, M. (1986), “Agency cost of free cash flow, corporate finance and takeovers”, American Economic Review Papers and Proceedings, Vol. 76 No. 2, pp. 323-329. Jensen, M.C. (1993), “The modern industrial revolution, exit and the failure of internal control systems”, Journal of Finance, Vol. 48 No. 3, pp. 831-880. Jensen, M. and Meckling, W. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360. Jones Lang LaSalle (2014), “Global real estate transparency index 2014”, [online], available at: www.jll.com/greti/ Documents/GRETI/Global-Real-Estate-Transparency-Index-2014.pdf (accessed 1 August 2015) Jurkus, A.F., Park, J.C. and Woodard, L.S. (2011), “Women in top management and agency costs”, Journal of Business Research, Vol. 64 No. 2, pp. 180-186. Khanchel, I. (2007), “Corporate governance: measurement and determinant analysis”, Managerial Auditing Journal, Vol. 22 No. 8, pp. 740-760. Klein, A. (1998), “Firm performance and board committee structure”, The Journal of Law and Economics, Vol. 41 No. 1, pp. 275-304. Koh, F., Lee, K.C.D., Phoon, K.F. and Seah, E.S. (2014), ““Market structure and growth potential of Singapore Real Estate Investment Trusts”, In: Lee, K.C.D. and Gregoriou, G.N. (Ed.) Handbook of Asian Finance: REITs, Trading, and Fund Performance, Elsevier Academic Press, San Diego, CA, pp. 53-67. Kohl, N. and Schäfer, W. (2010), “Corporate governance and market valuation of publicly traded real estate companies: evidence from Europe”, The Journal of Real Estate Finance and Economics, Vol. 44 No. 3, pp. 362-393. Laing, D. and Weir, C. (1999), “Governance structures, size and corporate performance in UK firms”, Management Decision, Vol. 37 No. 5, pp. 457-467. Larcker, D.F., Richardson, S.A. and Tuna, I. (2007), “Corporate governance, accounting outcomes, and organizational performance”, The Accounting Review, Vol. 82 No. 4, pp. 963-1008. Lecomte, P. and Ooi, J.T. (2012), “Corporate governance and performance of externally managed Singapore real estate investment trusts”, The Journal of Real Estate Finance and Economics, Vol. 46 No. 4, pp. 1-21. Lecomte, P. (2012), “The R index of CG: Introducing a new measure of corporate Governance for Singapore real estate investment trusts”, APREA White Paper, January 2012. Lee, S.H. and Makhija, M. (2009), “Flexibility in internationalization: is it valuable during an economic crisis?”, Strategic Management Journal, Vol. 30 No. 5, pp. 537-555. Ling, D.C. and Ryngaert, M. (1997), “Valuation uncertainty, institutional involvement, and the underpricing of IPOs: the case of real estate investment trusts”, Journal of Financial Economics, Vol. 43 No. 3, pp. 433-456. Liu, P. (2010), “Real estate investment trusts: performance, recent findings, and future directions”, Cornell Hospitality Quarterly, Vol. 51 No. 3, pp. 415-428. Lorsch, J.W. and MacIver, E. (1989), Pawns or Potentates: The Reality of America’s Corporate Boards, Harvard Business School Press, Boston, MA. McIntosh, W., Rogers, R.C., Sirmans, C.F. and Liang, Y. (1994), “Stock price and management changes: the case of real estate investment trusts”, Real Estate Economics, Vol. 22 No. 3, pp. 515-526. Mehran, H. (1994), “Executive compensation structure, ownership, and firm performance”, Journal of Financial Economics, Vol. 38 No. 2, pp. 163-185. Mohamad, N.E.A., Saad, N.M. and Bakar, S. (2011), “Risk and real estate investment trust (REITs) return: evidence from listed public trust”, Indonesian Capital Market Review, Vol. 3 No. 1, pp. 1-12. Moody’s (2007), “CG of externally managed real estate investment trusts presents credit risks”, [online], available at: www.moodys.com/sites/products/AboutMoodysRatingsAttachments/ 2007000000456227.pdf (Accessed 12 July 2015).



MAJ

Moss, A. and Prima, A.D. (2013), “Asia pacific listed real estate: a contextual performance analysis”, available at: http://aprea.asia/downloads/research_member/Asia%20Pacific%20Listed% 20Real%20Estate_A%20Contextual%20Performance%20Analysis.pdf Mullaney, J. (1998), REITs: Building Profits with Real Estate Investment Trust, John Wiley & Sons, New York, NY. National Association of Real Estate Investment Trust (NAREIT) (2014), “Real estate investment trust world: NAREIT’s annual convention for all things real estate investment trust”, Available at: www.reit.com/nareit/events/reitworld (accessed 11 August 2014). Newell, G. and Sieracki, K. (2009), Global Trends in Real Estate Finance, Wiley-Blackwell, Oxford. Newell, G., Ting, K.H. and Acheampong, P. (2002), “Listed property trust in Malaysia”, Journal of Real Estate Literature, Vol. 10 No. 1, pp. 109-118. Ooi, J.T.L., Ong, S.E. and Neo, P.H. (2011), “The wealth effects of property acquisitions: evidence from Japanese and Singaporean real estate investment trusts”, Real Estate Economics, Vol. 39 No. 3, pp. 487-505. Ooi, J. (2010), “The compensation structure of real estate investment trust managers: impact on stock valuation and performance”, Journal of Property Research, Vol. 26 No. 4, pp. 309-328. Ooi, J.T.L., Newell, G. and Sing, T.F. (2006), “The growth of real estate investment trust markets in Asia”, Journal of Real Estate Literature, Vol. 14 No. 2, pp. 203-222. Pahlevan Sharif, S. and Yeoh, K. (2016), “The resource provision capability of independent directors in family-controlled, publicly-listed companies in Malaysia”, Corporate Ownership and Control, Vol. 13 No. 4, pp. 403-413. Pallant, J.F. (2011), SPSS Survival Manual: A Step by Step Guide to Data Analysis Using SPSS, 4th Ed., Allen & Unwin, Crows Nest, NSW. Pattitoni, P., Petracci, B., Potì, V. and Spisni, M. (2012), “Fee structure, financing, and investment decisions: the case of real estate investment trusts”, RCEA 11_30 working paper, The Rimini Centre for Economic Analysis. Pfeffer, J. and Salancik, G.R. (1978), The External Control of Organizations: A Resource Dependence Perspective, Harper & Row, New York, NY. Phan, P.H., Lee, S.H. and Lau, S.C. (2003), “The performance impact of interlocking directorates: the case of Singapore”, Journal of Managerial Issues, Vol. 15 No. 3, pp. 338-352. Pica, A. (2011), “Asia-Pacific Real estate investment trusts building trust through better real estate investment trust governance”, [online]. www.cfasociety.org/japan/publications/Asia-Pacific% 20REITs(E)ccb.v2011.n4.1.pdf (accessed 15 July 2015). Prima, A.D., Stevenson, S. and Wyatt, P. (2013), “Sponsor, corporate governance and Asian real estate investment trust performance”, The European Real Estate Society 20th Annual Conference, Vienna, Austria. Quinton, S. and Smallbone, T. (2006), Postgraduate Research in Business: A Critical Guide, Sage Publication. Rashid, A. (2007), “Product market competition, regulation and dividend payout policy of Malaysian banks”, Journal of Financial Regulation and Compliance, Vol. 16 No. 4, pp. 318-334. Rezaee, Z. (2009), Corporate Governance and Ethics, John Wiley & Sons, United States. Rose, C. (2007), “Does female board representation influence firm performance? The Danish evidence”, Corporate Governance: An International Review, Vol. 15 No. 2, pp. 404-413. Rozali, M.B., Hamzah, A.H. and Tahir, I. (2007), “Empirical investigation on the performance of the Malaysian real estate investment trusts in pre-crisis, during crisis and post-crisis period”, International Journal of Economics and Finance, Vol. 2 No. 2, pp. 62-78.


Sagalyn, L.B. (1996), “Conflicts of interest in the structure of REITs”, Real Estate Finance, Vol. 9 No. 2, pp. 34-51. Singh, M., Mathur, I. and Gleason, K.C. (2004), “Multinational diversification and corporate performance: evidence from European firms”, European Financial Management, Vol. 10 No. 3, pp. 439-464. Skinner, D.J. (1999), “How well does net income measure firm performance? A discussion of two studies”, Journal of Accounting and Economics, Vol. 26 Nos 1/3, pp. 105-111. Sonnenfeld, J. (2004), “Good governance and the misleading myths of bad metrics”, Academy of Management Perspectives, Vol. 18 No. 1, pp. 108-113. Sons, J.W. (2007), Playing the REITs Game, John Wiley & Sons, New York, NY. Striewe, N.C., Rottke, N.B. and Zietz, J. (2013), “Corporate governance and the leverage of real estate investment trusts: the impact of the advisor structure”, Journal of Real Estate Research, Vol. 35 No. 1, pp. 103-120. Tarraf, H. (2010), “Literature review on corporate governance and the recent financial crisis”, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1731044 (accessed 20 July 2015). Tian, G.G. and Zeitun, R. (2007), “Capital structure and corporate performance: evidence from Jordan”, Australian Accounting Business and Finance Journal, Vol. 1 No. 4, pp. 104-115. Tien, S.F. and Sze, L.C. (2003), “The role of Singapore REITs in a downside risk asset allocation framework”, Journal of Real Estate Portfolio Management, Vol. 9 No. 3, pp. 219-235. Vassalou, M. and Xing, Y. (2004), “Default risk in equity returns”, The Journal of Finance, Vol. 59 No. 2, pp. 831-868. Wegge, J., Roth, C., Neubach, B., Schmidt, K.-H. and Kanfer, R. (2008), “Age and gender diversity as determinants of performance and health in a public organization: the role of task complexity and group size”, The Journal of Applied Psychology, Vol. 93 No. 6, pp. 1301-1313. Wei, P., Hsieh, C. and Sirmans, C.F. (1995), “Captive financing arrangements and information asymmetry: the case of REITs”, Real Estate Economics, Vol. 23 No. 3, pp. 385-394. Whiting, D. (2007), Playing the REIT Game: Asia’s New Real Estate Investment Trusts, John Wiley & Sons (Asia), Singapore. Wong, W.C., Ong, S.E. and Ooi, J.T.L. (2013), “Sponsors backing in Asian real estate investment trust IPOs”, The Journal of Real Estate Finance and Economics, Vol. 46 No. 2, pp. 299-320. Further reading APREA (2014/2017), “APREA corporate governance indices (CGI) for REITs in Asia”, available at: www.aprea.asia/index.php?option=com_content&task=view&id=125&Itemid=222 (accessed 28 June 2015, 9 April 2017). Wang, K., Erickson, J. and Gau, G.W. (1993), “Dividend policies and dividend announcement effects for real estate investment trust”, Real Estate Economics, Vol. 21 No. 2, pp. 185-201. Corresponding author Jayalakshmy Ramachandran can be contacted at: [email protected]

For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: [email protected]
