The governance mechanisms of family-controlled REITs

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.