Implications of Tax Shields to REITs Returns: Compare Returns of REITs with and without Taxes

• Main Authors: Yi-wen Hsu, 徐益文
• Other Authors: Gordon GD. Chang
• Format: Others
• Language: en_US
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/78256874304580917714

碩士 === 國立臺灣科技大學 === 財務金融研究所 === 96 === This study is to examine the returns of REITs with and without taxes. We find that the returns of REITs with taxes are significantly higher than the returns of REITs without taxes. Generally speaking, exempt from corporate taxes is the incentive for investors to invest in REITs. However, in this paper we conclude that there exist benefits for taxed REITs. Although untaxed REITs can save tax expenses, taxed REITs would rather pay taxes to obtain the retained earnings for reinvestment. This represents that they have more investment opportunities. The benefits from reinvestment can offset the taxes they pay. The GARCH and the GARCH-M models are applied to examine if the risk premia of tax shield effects on REITs are time-varying and heteroskedastic. The Vector autoregressive (VAR) method is used to investigate how macroeconomic variables affect the tax shield premia. Our main findings are listed as follows: (1) there exists the tax shield premia during the period of January 1987 to December 2006; (2) the tax shield effects on REITs returns may be time-varying and affected by their past volatility; (3) the conditional volatility has significantly positive impact on the tax shield premia; (4) the changes in tax shield premia are partially resulted from both changes in stock price index in the stock market and the changes in long-term interest rates (a proxy for the effects of monetary policy on longer�鮅erm yields); and (5) investors benefit from taxed REITs in longer lag (5th month) when stock price is volatile.