Managerial Style, Managerial Expenses and Firm Value
Posted: 25 Aug 1998
Abstract
A firm can be viewed as a portfolio of projects arising from capital budgeting decisions. How these projects are bundled, i.e. managerial style, affects administrative costs and firm value. We analyze the effect of style on firm value using a panel data set of 75 publicly-traded REITs over eight years. We partition general and administrative (G&A) expenses into that portion attributable to management "style" and a residual component. The style component is significantly related to the focus, size and debt of the firm. Though both components are significantly negatively related to market value, style-related components have a five-fold greater impact. We conclude that reorganizing into larger, more focused, less levered trusts would result in substantial value-added.
JEL Classification: L1, G31, J33, L85
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