What is the Relationship Between REIT Governance and Earnings Management?

Corporate governance, Islamic governance and earnings management in Oman

“…Prior studies have examined: (i) the link between CG structures (e.g., board characteristics) and EM (Chung et al, 2002;Klein, 2002;Xie et al, 2003;Davidson et al, 2005;Mitra & Cready, 2005;Lin et al, 2006;Rahman & Ali, 2006;Jaggi & Tsui, 2007;Jiraporn & Gleason, 2007;Bowen et al, 2008;Jiang et al, 2008;Epps & Ismail, 2009;Ghosh et al, 2010;Kent et al, 2010;Lo et al, 2010;Bekiris & Doukakis, 2011;Alves, 2012;Chen & Zhang, 2012;Leventis & Dimitropoulos, 2012;Anglin et al, 2013;Albu & Girbin, 2015); (ii) the effect of gender on EM (Krishnan & Parsons, 2008;Gavious et al, 2012); (iii) the impact of audit firm size on EM (Chia et al, 2007;Francis & Wang, 2008) or audit quality (DeAngelo, 1981); (iv) the effect of terrorists attacks on EM (Iatridis, 2012); and (v) the effect of executive pay on EM (Cornett et al, 2008).…”

A Review of Corporate Social Responsibility and Real Estate Investment Trust Studies: An Australian Perspective

“…With regard to the effect of corporate governance on REITs, generally, the legal restrictions of A-REITs function as a safeguard for unit holders' interests and remove the need for internal governance Feng et al, 2007b;Bauer et al, 2010). Despite this safeguard, it has been argued that: (i) a significant agency problem exists, leaving REIT CEOs the discretion to design board structure and benefits Feng et al, 2007a), and (ii) REIT managers may have an incentive for personal gain (Ghosh et al, 2012;Ghosh & Sun, 2014), which might lead to earnings management manipulations (Anglin et al, 2013).…”

“…On the other hand, several studies suggest that independent directors may indeed enhance REIT performance (Ghosh & Sirmans, 2003;Feng et al, 2005;Hartzell et al, 2006;Anglin et al, 2013). Additional board characteristics are also found to provide better monitoring and these are: board size (smaller sizes tend to be more efficient); a non-chair CEO; the number of board meetings; and audit committee financial expertise (Feng et al, 2005;Anglin et al, 2013). The former two characteristics were also found to contribute to an enhanced financial performance (Feng et al, 2005), however, this was only significant for the best and worst boards.…”

An Examination of Prevalence of Earnings Management in Asia REITs

“…Real Estate Investment Trust, also known as REITs, are no exception. They face the same problem (Anglin, Edelstein, Gao, & Tsang, 2012;Deng & Ong, 2014) and most previous studies have found that the occurrence of earnings management is driven by the agency problem discussed in the agency theory (Tang & Chang, 2013;Teoh, Wong, & Rao, 1998). Separation of the principal (shareholders) and agent (managers) leads to the agency conflict ultimately resulting in the agency cost to the company (Jensen, 1986) such as compensation plans such as bonuses, promotion and employee stock option plan that are used to align the interest of shareholders and manager (Murphy, 1985).…”

“…In discretionary accruals method, managers have the discretion to manipulate earnings figures using the accounting treatment without getting involved in real manipulation of operation activities such as reduction in R&D expenditure or reduction in the cost of goods sold (COGS) in order to increase the net income figure. On the other hand, the fund from operation is an industry -specific measure which provides another option to measure the REITs performance and is recommended by the National Association of Real Estate Investment Trust (NAREIT) (Anglin et al, 2012). However, the data of funds from operation in Asia REITs is limited and not common compared to U.S. REITs.…”