An Empirical Examination of Compensation of REIT Managers

Principal-agent literature finds that manager and owner incentives can be aligned with performance contingent contracts. We investigate the compensation of Real Estate Investment Trust (REIT) industry executives. 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.

Mortgage Lenders' Market Response to a Landmark Regulatory Decision Based on Fair Lending Compliance

Regulation of real estate lending has substantially increased in the past decade. Government efforts to improve compliance with Community Reinvestment Act mandates are evidence of increased emphasis on racial equal opportunity in loan origination. To investigate the impact of these efforts, this paper examines the Federal Reserve Bank rejection of Shawmut National Corporation's application to buy New Dartmouth Bank. Rejection was based on Shawmut's poor compliance with fair-lending guidelines. Testing finds significant negative abnormal stock returns for samples of mortgage lenders on the announcement day of Shawmut's application rejection. In addition, cross-sectional analysis reveals an inverse relationship between national banks' cumulative abnormal returns (CARs) and a measure of fair lending.

The Impact of the California Earthquake on Real Estate Firms' Stock Value

The purpose of this study is to examine the effect of the October 17, 1989 California earthquake on the stock value of firms involved in the real estate industry. The impact of the earthquake on real estate-related stock prices is examined. The findings indicate that the earthquake conveyed important new information to the market that was reflected in statistically significant negative stock returns among those firms operating in the San Francisco area. Real estate-related firms operating in other areas of California were generally unaffected by the earthquake.

Dividend Decapitalization And Financial Performance Signals

This study examines the stock price response to dividend announcements which include a return of capital to owners.  The continuation of an amount previously distributed exclusively from earnings is effectively a dividend reduction.  Dividend cuts have been shown to provide an unfavorable signal to investors.  Empirical results indicate that the market does not infer unfavorable subsequent financial performance signals from “decapitalization” dividends

Financial Innovation in the Management of Catastrophe Risk

Like the preceding article, this article argues that the high costs of reinsurance present the opportunity for hedging instruments to be offered to primary insurers that are both competitive with current reinsurance and that offer investors high rates of return. But the combination of high reinsurance premiums and the vast capacity of the capital market for diversification is not sufficient to ensure the success of these new instruments. If new instruments such as catastrophe options and catastrophelinked bonds are to compete successfully with reinsurance, they must provide a cost-effective means of resolving incentive conflicts between the primary insurer and the ultimate risk bearer that are known as "moral hazard." Without an effective solution of this moral hazard problem, the use of past insurance loss data to estimate the potential returns for purchasers of catastrophe bonds and other such instruments will be misleading and unreliable. 1997 Morgan Stanley.