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Do Internally Managed Reits Manage Earnings More Than Externally Managed Reits?

Author

Listed:
  • Ajayi Oluwaseun Damilola

    (Department of Real Estate, School of the Built Environment, London Metropolitan University, 166-220 Holloway Rd, London N7 8DB, United Kingdom)

  • Akinsomi Omokolade

    (School of Construction Economics and Management, University of the Witwatersrand, 1 Jan Smuts Ave, Braamfontein, Johannesburg, 2017, South Africa)

Abstract

The purpose of the paper was to provide an empirical examination of earnings management among internally and externally managed REITs. The empirical accounting literature claims that internal management of a firm does not constrain earnings management, while others argue in favor of internal management for firms. Using a sample of listed South African REITs for the 2013 - 2021 time period, we examine the relationship between management structures and earnings management. We do not find any aggressive practice in internally managed REITs during the study period. The study’s findings imply that good corporate governance is a critical safeguard for stakeholders in exceptional circumstances when REITs have special incentives to manage earnings; as a result, it is suggested that REITs’ corporate governance is important, despite being overlooked in some circumstances. Specific to South African REITs, policymakers as well as nominating committees of the board of directors may wish to take note that financial competence is an important quality of external directors in order to effectively curb earnings management. This is the first study to investigate financial sheet manipulation among REITs management structures in an emerging market.

Suggested Citation

  • Ajayi Oluwaseun Damilola & Akinsomi Omokolade, 2024. "Do Internally Managed Reits Manage Earnings More Than Externally Managed Reits?," Real Estate Management and Valuation, Sciendo, vol. 32(4), pages 28-43.
    • Handle: RePEc:vrs:remava:v:32:y:2024:i:4:p:28-43:n:1003
    DOI: 10.2478/remav-2024-0033
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    More about this item

    Keywords

    earnings management; discretionary accruals; REITs; emerging markets;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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