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We investigate whether Real Estate Investment Trust (REIT) managers actively manipulate performance measures in spite of the strict regulation under the REIT regime. We provide empirical evidence that is consistent with this hypothesis. Specifically, manipulation strategies may rely on the opportunistic use of leverage. However, manipulation does not appear to be uniform across REIT sectors and seems to become more common as the level of competition in the underlying property sector increases. We employ a set of commonly used traditional performance measures and a recently developed manipulation-proof measure (MPPM, Goetzmann, Ingersoll, Spiegel, and Welch (2007)) to evaluate the performance of 147 REITs from seven different property sectors over the period 1991-2009. Our findings suggest that the existing REIT regulation may fail to mitigate a substantial agency conflict and that investors can benefit from evaluating return information carefully in order to avoid potentially manipulative funds.


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© Wiley. This is the peer reviewed version of the following article: Alcock, J., Glascock, J., & Steiner, E. (2017). The interrelationships between REIT capital structure and investment, Abacus,53(3), which has been published in final form at DOI: 10.1111/abac.12113. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

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