Investment and finance committees composition and firm performance: evidence from US Real Estate Investment Trusts (REITs)

The purpose of this research is to examine the effect of inside directors sitting on finance and investment committees on US Real Estate Investment Trusts (REITs) performance. The study is based on a sample of 60 US equity REITs of which 31 are the REITs listed on the S&P 500 and 29 are a random sample of non-S&P 500 REITs for the 2010–2019 period. I use panel random regression models, controlling for heteroscedasticity and group correlation, to explore this research question. For the S&P 500 REITs, I find a positive relationship between the percentage of inside directors on investment but not finance committees and performance as measured by return on assets. These results are consistent with Fama and Jensen’s (J Law Econ 26(2):301–326, 1983) claim that inside directors provide valuable information to boards about the firm’s long-term investment decisions. For non-S&P 500 REITs, I find a negative relationship between insiders sitting on finance committees and REIT performance as measured by both return on assets and return on equity. The discrepancy in results between S&P 500 REITs and non-S&P 500 REITs is most likely due to their differences in REITs’ sizes and phase in the life cycle which is consistent with findings from previous research (Zahra and Pearce in J Manag 15(2):291–334, 1989; Linck et al. in J Financ Econ 87(2):308–328, 2008) and with the hypothesis that the optimal board design varies depending on the nature and firm-level characteristics of firms.