The impact of gender and ethnic diversity on REIT operating performance

Purpose The purpose of this paper is to examine the relationship between gender and ethnic diversity in managerial positions and Real Estate Investment Trust (REIT) operating performance. Design/methodology/approach The authors employ two-stage Heckman correction models on an unbalanced panel of US Equity REITs for the time period from 2000 to 2015. The second-stage model uses multiple operating performance measures regressed on a dichotomous variable that indicates if the REIT promotes diversity in middle management in addition to a vector of control variables. Findings The results indicate that REITs that promote diversity in middle management with profit-and-loss responsibilities have lower operating performance than comparable counterparts. That is, gender and demographic diversity is negatively related to REIT performance as measured by return on assets, return on equity and funds from operations. Practical implications The analysis indicates that while gender and ethnic diversity is socially responsible and may provide many benefits, diversity among managers and decision makers has to be carefully implemented in order to achieve positive financial results. Originality/value This paper contributes to the literature by investigating whether diversity in leading managerial positions, other than in top officer ranks and on the board of directors, have an impact on REIT operating performance.

On Alternative Measures of Accruals

SYNOPSIS This paper investigates the difference between two widely used measures of accruals and their differential impact on accrual strategy returns. The two measures are accruals computed using consecutive changes in the balance sheet items and accruals computed as earnings minus cash flows from operating activities, both from the cash flow statement. Our investigations reveal that the difference between the two measures is caused by four items and non-articulations in changes in working capital accounts and depreciation expenses, in addition to non-articulation events as identified by Hribar and Collins (2002). We find that the non-articulation in working capital accounts and depreciation expenses between the cash flow statement and other financial statements is surprisingly prevalent and economically significant, and it can be attributed to special events, errors made by Compustat, firms' inconsistent definitions, and non-standard classifications of assets/liabilities. We show that, after excluding non-articulation events, the accrual strategy returns are higher for accruals computed using balance sheet items than accruals computed using cash flow statement items. Further investigations suggest that the return differentials are mainly due to other funds from operations and the non-articulation in changes in accounts receivable. JEL Classifications: G12; G14; M41. Data Availability: Data used are available from the sources identified in the study.

Information Content and Value Relevance of Depreciation: A Cross-Industry Analysis

ABSTRACT: Funds from Operations (FFO) is the prevailing performance measure in the Real Estate Investment Trust (REIT) industry. However, prior studies are inconclusive about the superiority of FFO over GAAP net income. Because depreciation is the largest reconciling item between FFO and net income, we examine the information content and value relevance of depreciation for both the REIT and non-REIT industries and report the following findings. First, accumulated depreciation is value-relevant for the REIT industry, whereas accumulated depreciation has little value relevance for comparably capital-intensive non-REIT industries. Second, accounting depreciation deviates from economic depreciation to a greater extent for REITs than for non-REIT industries. Third, accumulated depreciation has predictive ability for future revenues for REIT firms, but not for non-REIT firms. Finally, only the REIT industry displays all of these properties. In sum, evidence supports the REIT industry's assertion that GAAP depreciation consistently exceeds economic depreciation and that book value of assets is systematically understated.

Reliability and Transparency of Non-GAAP Disclosures by Real Estate Investment Trusts (REITs)

This paper examines whether industry efforts to decrease managerial discretion, increase uniformity, and improve transparency of a non-GAAP performance measure change voluntary disclosure and market perceptions. We find that the frequency of REITs meeting or beating analysts' expectations of funds from operations (FFO) decreases following explicit industry initiatives to discourage manipulation. Concurrent with this shift, we find that the information content of FFO to investors increased, particularly for firms reporting a reconciliation of FFO with GAAP earnings. We also examine firms in other industries to assess alternative explanations for these results, such as SEC intervention. Collectively, our findings suggest that industry guidance about non-GAAP performance curtailed managers' opportunistic reporting. Furthermore, the market response to FFO is consistent with investors perceiving less manipulation and greater reliability. Our evidence also supports the SEC's subsequent requirement that all non-GAAP disclosures be reconciled to the nearest GAAP measures.