In hotel REITs, are institutional investors beneficial for firm value?

Abstract

Motivated by growing attention to the agency problems of institutional investors, along with recent changes that have identified real estate investment trusts (REITs) as a separate industry segment, this study investigates the impacts of institutional ownership on the firm value of hotel REITs. Hotel REITs provide unique regulatory and operational settings in which it is appropriate to investigate the potential adverse consequences of institutional investments on firm value. This study performs additional analyses using non-REIT hotel corporations (hotel C-corporations) for comparison. After testing pooled ordinary least squares, fixed and random effects, and two-stage least squares in quadratic models, the results of the random effects models are found to be valid and are thus adopted to examine the hypothesized relationship. The analysis showed a U-shaped relationship between institutional ownership and firm value (as measured using Tobin’s q) but a dominantly negative relationship in the majority of observations, whereas no significant relationship is found for hotel C-corporations.