Summary
Malmquist Total Productivity Index
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Firm size and productivity: the case of REITs.
ABSTRACT
Real Estate Investment Trusts (REITs) have experienced numerous operational changes since 1993 because of legislation, structural changes, and consolidations. We employ the Malmquist Index to examine the impact of these changes on the productivity of REITs of different size categories during 1989-1999. Regardless of the firm size, REITs experience increases in efficiency during the 1994-1999 period. However, results reveal that technological regress leads to productivity loss. The positive trend in scale efficiencies for larger REITs may be related to merger activities occurring after 1993. Finally, higher efficiency measures for smaller firms can be attributed to increased competition. Keywords: REITs; Malmquist Index; Productivity Change 1. INTRODUCTION The U.S. Congress established Real Estate Investment Trusts (REITs) to allow small investors to participate in diversified, large-scale, income-producing real estate enterprises. An explosion of REIT activity occurred and REITs have raised substantial amounts of capital for acquiring existing properties and financing the development of new properties. REITs have also become a major source of funding for the real estate industry by rapidly increasing security offerings. According to the National Association of Real Estate Investment Trusts (NAREIT), during the period 1989-2000, the number of equity REITs rose from 56 to 158, and the total market capitalization increased from $6.8 billion to $134 billion. Operational environment changes and regulatory shifts in the industry have also impacted REIT growth. While the average annual number of equity REITs during 1989-1992 was 72.3, the average grew to 166 in the period 1993-2000. Moreover, the average market capitalization for the period of 1993-2000 increased more than 11 times that of the preceding four years. REITs have also ...See the full content of this document
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