Abstract: The Information Content of the 1999 Announcement of Funds from Operations (FFO) Changes for Real Estate Investment Trusts

Volume 28, Number 3, 2006 of the Journal of Real Estate Research
The Information Content of the 1999 Announcement of Funds from Operations (FFO) Changes for Real Estate Investment Trusts

Eric J. Higgins Associate Professor of Finance Kansas State University Manhattan, Kansas 66506 Email: ehiggins@ksu.edu	Richard L. Ott Associate Professor of Accounting Kansas State University Manhattan, Kansas 66506 Email: rlo@ksu.edu

Robert A. Van Ness Associate Professor of Finance University of Mississippi University, Mississippi 38677 Email: rvanness@bus.olemiss.edu

Abstract:

We examine the market response to the 1999 announcement of a change in accounting for Funds from Operations (FFO) for Real Estate Investment Trusts (REITs). This change provides an increase in transparency in the accounting statements of REITs regarding the calculation of FFO. An analysis of this announcement finds that shareholder wealth increases but the significance of that increase is questionable. Additionally, an analysis of the adverse selection component of the bid/ask spread finds weak evidence to support the conjecture that the amount of information asymmetry in
REIT prices declines after the announcement of the FFO accounting change.