CAPTIVE FINANCING ARRANGEMENTS AND INFORMATION ASYMMETRY - THE CASE OF REITS

For the sample period of 1985 and 1986, captive real estate investment s trusts (REITs) have a larger bid-ask spread than noncaptive REITs, a fter controlling for trading volume, price volatility insider holdings , institutional holdings and firm size. Based on the bid-ask spread li terature, the results suggest that captive firms are subject to a grea ter degree of information asymmetry. This implies a higher cost of cap ital for captive firms. The evidence here and the trend toward self-ad ministered REITs imply that information asymmetry and conflicts of int erests within REITs are priced.