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Journal cover: Journal of Property Investment & Finance

Journal of Property Investment & Finance

ISSN: 1463-578X
Previously published as: Journal of Property Valuation and Investment

Online from: 1999

Subject Area: Built Environment

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REIT excess dividend and information asymmetry: evidence with taxable income

Document Information:
Title:REIT excess dividend and information asymmetry: evidence with taxable income
Author(s):Ming-Te Lee, (Department of Accounting, Ming Chuan University, Taipei, Taiwan), Bang-Han Chiu, (Department of Finance, Yuan Ze University, Chung-Li, Taiwan), Ming-Long Lee, (Department of Finance, National Dong Hwa University, Shoufeng, Taiwan), Kevin C.H. Chiang, (School of Business, University of Vermont, Burlington, Vermont, USA), V. Carlos Slawson Jr, (Department of Finance, Louisiana State University, Baton Rouge, Louisiana, USA)
Citation:Ming-Te Lee, Bang-Han Chiu, Ming-Long Lee, Kevin C.H. Chiang, V. Carlos Slawson Jr, (2010) "REIT excess dividend and information asymmetry: evidence with taxable income", Journal of Property Investment & Finance, Vol. 28 Iss: 3, pp.221 - 236
Keywords:Dividends, Real estate, United States of America
Article type:Research paper
DOI:10.1108/14635781011048867 (Permanent URL)
Publisher:Emerald Group Publishing Limited

Purpose – US real estate investment trusts (REITs) typically distribute more dividends than required by tax regulations. This paper aims to focus on discretionary dividends, and examines the impact of information asymmetry on this excess component of dividends.

Design/methodology/approach – This paper considers a set of US REITs with reported taxable income figures over the 2000-2007 period, and employs regression analysis to examine the influence of information asymmetry on the excess component of dividends. The explained variable is specified as excess dividends scaled by total assets. Excess dividends are dividends paid over the mandatory dividend payments calculated with taxable income, instead before-tax net income. Following the REIT studies of Hardin and Hill and Han, this study employs Tobin Q as the proxy for asymmetric information.

Findings – Contrary to Hardin and Hill's conclusion, but consistent with dividend signaling theory as well as agency cost explanations, the results indicate that REITs with higher level of asymmetric information pay out significantly more excess dividends. Nevertheless, in contrast to Deshmukh's study on manufacturing firms, the REIT results are against the prediction of the pecking order theory.

Originality/value – The paper is one of the few studies that explicitly examine the factors influencing REIT decision on discretionary dividends. Contrast to previous studies, this study is able to obtain taxable income and compute the discretionary dividends more accurately. Furthermore this paper is able to provide evidence against the pecking order theory, which is not investigated in the existing REIT dividend studies.

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