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Research Seminars & Workshops @ IRES

Professor Desmond Tsang
McGill University

Real Earnings Management and Dividend Payout Signals:
A Study for U.S. Real Estate Investment Trusts


4 May 2009 (Mon)


3.30 pm - 5.00 pm


RMI Seminar Room
21 Heng Mui Keng Terrace, Level 4


This paper examines how cash constrained U.S. Real Estate Investment Trusts (REITs) engage in real earnings management (REM) to mitigate the effects of dividend payout regulations. REITs are required by Federal law to distribute 90% of taxable income as dividends to common shareholders. Since REIT taxable income typically is not publicly reported, we use the dividend payout ratio based on FFO, a voluntary accounting measure commonly used by the REIT industry, as a surrogate for the unobserved dividend-to-taxable income ratio. By using the dividend-to-FFO ratio to identify REITs that may confront difficulties paying required dividends, we find that these firms are more likely to participate in REM activities by reducing revenue or increasing expenses; either activity would reduce taxable income. Further, REITs generating less cash flow from operations and having fewer opportunities to obtain funding from the general capital and debt markets are more likely to employ REM by selling fixed assets (even at a loss) to generate the necessary cash as well as to alter the dividend payment requirements. Overall, for REITs with limited available funding sources, our findings suggest REM is a viable strategy for managing regulatory dividend constraints.

About The Speaker

Professor Tsang was appointed as Assistant Professor of Accounting since 2006. He began his career in the auditing department at Deloitte and Touche in Hong Kong and later worked as an economist at the Ontario Ministry of Finance in Canada. His research interests include: Earnings Management; Corporate Governance; Analyst Forecast; International Financial Reporting Standards; Real Estate Investment Trusts; and International Real Estate Issues.
Professor Tsang has published in journals such as Real Estate Economics and Journal of Real Estate Finance and Economics and has presented his research findings at conferences in the US, Europe and Asia. Professor Tsang is also a Certified Public Accountant (CPA) and has completed all levels of the Certified Financial Analyst (CFA) exams.

For full paper, download here

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