Boards of directors and firm leverage: Evidence from real estate investment trusts

We re-examine the negative association between leverage and returns while also focusing on the role of boards of directors. To do so, we utilize the unique setting of real estate investment trusts (REITs), their high leverage, and the volatility that the industry experienced during the recent financial crisis. We find that during the financial crisis REIT board activity increased, especially among firms with high leverage. We also find that board activity helps mitigate the previously reported negative effect of leverage on returns during this time period. Post-crisis, we find evidence suggesting that firms with more active boards reduce their leverage if their pre-crisis leverage was high. Further, firms with more active boards have better post-crisis returns. Our findings are robust to using different measures of activity that take into account director experience in real estate and finance.