Ownership Dynamics with Multiple Insiders: The Case of REITs



We study ownership dynamics of multiple strategic risk-averse insiders facing a moral hazard problem. We show that, when insiders cannot commit, ex ante, to an ownership policy, the aggregate insider stake gradually declines toward the competitive market allocation. Both the speed of adjustment and the long-term equilibrium aggregate insider ownership level are greater for companies with a larger number of insiders, ceteris paribus. Using data from U.S. real estate investment trusts, we then test the model and find that the predictions of the model are verified empirically.