#07-29
Ownership Dynamics with Multiple Insiders: The Case of REITs
Robert H. Edelstein, Antoni Sureda-Gomila, Branko Urošević,
and Nicholas Wonder, December 2006
Abstract: We study ownership dynamics of multiple strategic risk-averse insiders
facing a moral hazard problem. We show that, when insiders cannot commit, ex-ante, to
an ownership policy, the aggregate insider stake gradually declines towards the
competitive allocation. Moreover, both the speed of decline and the long-term
equilibrium aggregate insider ownership level are greater for companies with a higher
number of insiders, ceteris paribus. We, then, test the model on data from the U.S. Real
Estate Investment Trusts (REITs) industry and find that the predictions of the model are
supported by the data.
Keywords: Corporate Insiders, Moral Hazard, Ownership Dynamics, REITs
JEL classifications: G14, G32, D43.
