Managerial Style and Firm Value

Dennis R. Capozza · Paul J. Seguin

65 citations0/0 files storedReal Estate Economics

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Corporate Finance and Governance Financial Analysis and Corporate Governance Financial Reporting and Valuation Research

Abstract

This study analyzes the effect of managerial style on firm value by partitioning general and administrative (G&A) expenses in the real estate investment trust industry into a nondiscretionary “structural” component associated with the costs of asset and liability management and a discretionary or “style” component. The discretionary component is significantly related to at least one measure of style—specifically, the portfolio focus/diversification of the firm. Gross (project‐level) cash flows are invariant to the nondiscretionary or structural component of G&A but are positively related to the style component of G&A. The structural component has a negative impact on share price while the style component has a neutral impact. Therefore, for this industry, creating larger, less‐levered firms would result in enhanced value.

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References

1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1981The relationship between return and market value of common stocks 1990Performance Pay and Top-Management Incentives 1995Diversification's effect on firm value 1994Tobin's q, Corporate Diversification, and Firm Performance 2008Executive compensation 1983Size-related anomalies and stock return seasonality 1985Corporate performance and managerial remuneration

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