Real estate and economies of scale: The case of REITs

Brent W. Ambrose, Michael J. Highfield, Peter D. Linneman

Research output: Contribution to journalArticlepeer-review

54 Scopus citations

Abstract

Building on past research in the economies-of-scale debate, we test for scale economies in real estate investment trusts (REITs) by examining growth prospects, revenue and expense measures, profitability ratios, systematic risk and capital costs. Overall, we find that large REITs are increasing growth prospects while succeeding at lowering costs, leading to a direct relationship between firm profitability and firm size. Additionally, we find an inverse relationship between equity betas and firm size, and for all cost of capital measures we find significant scale economies. Further evidence from the stochastic frontier analysis suggests efficiency opportunities appear possible through continued growth and consolidation in REITs.

Original languageEnglish (US)
Pages (from-to)323-350
Number of pages28
JournalReal Estate Economics
Volume33
Issue number2
DOIs
StatePublished - Jun 1 2005

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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