The results indicate that the performance of the REIT portfolios was consistent with the security market line for the 1970-1993 period. However, REIT performance varied over the period. Finally, survivor REITs in general performed better than the overall REIT population. Return to the top of this web page An Empirical Examination of Compensation of REIT Managers Marc C. Chopin, Ross N. Dickens, and Roger M. Shelor Principal-agent literature finds that manager and owner incentives can be aligned with performance contingent contracts. The competitive nature of mortgage and equity markets, in conjunction with the corporate tax exemption available when REITs distribute most of their earnings as dividends, is likely to influence the compensation of REIT managers.
Executive compensation is modeled as a function of revenues and unexpected profit.
After transforming the model to reduce collinearity and heteroskedasticity, we find compensation to be generally positively related to revenue. We also find unexpected profit to be generally insignificantly related to compensation, but positively related in those cases where it is significant. The time period used in this study is substantially longer than in earlier studies. A model of real estate returns is derived that has components for expected and unexpected returns and allows for variation in the real return on risky assets. The results indicate that REITs provide some hedging capability against expected inflation, but act as perverse hedges against unexpected inflation.