The governance mechanisms of family-controlled REITs: A dominant founder and the retirement consequences

Abstract

Purpose

The purpose of this paper is to analyze how founders of family-controlled Real Estate Investment Trusts (REITs) under bounded rationality implement internal governance mechanisms that may affect the long-term performance once the founder retires. These actions create a hurdle for successors to follow the founder’s success.

Design/methodology/approach

The authors collected data on secondary sources of 36 family and 22 professionally managed REITs from 1999 to 2012 that resulted in an unbalanced panel data of 726 REIT-year observations. The authors use a series of multi-variate analyses to test the hypotheses.

Findings

The findings confirm that founders of family-controlled REITs focus more on developing internal governance mechanisms to satisfy their personal goals. Long-term performance is negatively affected once the successor takes over especially when the successor is a family member.

Research limitations/implications

The authors have data limitations about family involvement. The authors suggest future avenues of investigation such as combining perceptual with archival data.

Practical implications

The authors expect that REIT managers and families can use the findings to develop viable and sustainable governance practices. Especially, being a publicly traded REIT implies to conform to the market expectations so there is a need to balance socio emotional wealth preservation with financial goals.

Originality/value

The authors frame the paper on transaction cost economics and contribute to the literature by stating that the dominance of founders of family-controlled REITs are more aligned to keep the business under family control once the founder retires.

Citation

Chang, E.P.C. and Noguera, M. (2016), "The governance mechanisms of family-controlled REITs: A dominant founder and the retirement consequences", Journal of Family Business Management, Vol. 6 No. 2, pp. 122-142. https://doi.org/10.1108/JFBM-02-2015-0012