Are Green REITs Valued More?

Abstract

Executive Summary. The growing popularity of corporate social responsibility amongst firms has led to an increase in sustainable initiatives across all sectors. While there has been evidence of benefits to owners of green buildings, the impact at the firm level for such investments is not commonly known. The objective of this study is to provide evidence on the question of financial benefits from strategic initiatives aimed at increasing ownership of greener buildings. We use real estate investment trusts (REITs) as investors/owners of properties to test if management initiatives result in higher firm value. Using a proxy for green initiatives by REITs, we find evidence of positive impact on firm value as measured by Tobin's q. Further, our results show that green REITs have a higher return on assets than their less-green peers. As an additional analysis, we find evidence of superior stock performance by green REITs over their non-green peers using Jensen's alpha as a measure.