Principal-agent Problem Research On Real Estate Investment Trusts

In recent years, the investments on real estate play a pivotal role in our country’seconomic development and grow as an engine for economic growth. The healthy developmentof real estate industry depends not only on the institutional side, but also on the real estatefund effective supply. while the impact inertia of the financial crisis and the debt crisis onChina speed up the government’s regulation and control on the real estate industry dynamics,to the real estate industry, how to open new financing channels for China’s real estate industrybecome the problem for continuing to advance. Adapted to the real estate fund demandcharacteristics, REITs has became a new financing way, and it is a kind of institutionalinnovation to our country’s real estate. While in the foreign REITs development courses,REITs has some problems with certain universality. Similarly, China’s real estate industryitself has some objective conditions which are also unfavourable to REITs in our country ’sdevelopment. Combining certain economics theory with the more profound analysis of REITsin some of the problems, not only deepen the understanding of REITs theoretically, but alsohas the reality guiding sense on the specific application in our country.It is in this context, relying on the information economics in the theory of principal-agent,this paper analyses China’s REITs in the development of the existing problems, especially theexistence of moral hazard and adverse selection problem. Using optimal planning method,the paper offers strategy to solve the problem of "moral risk" and" adverse selection", andputs forward suggestions for policy to the actual specific condition in China.Specifically, the first chapter mainly introduces the background of REITs, thesignificance of the topic, and the starting point of analysis, puts forward the theoretical andactual significance of analysis REITs problems wthin principal-agent theory. From the REITs’most basic contradiction, namely the trust and agent relationship, the paper begins tointroduce the later parts.To offer concrete theoretical analysis for the later chapters, the second chaptersummarizes and deepens the connotation, classification, characteristics of REITs, andintroduces the basic theory, i.e., the principal-agent theory.The third chapter uses the static optimal planning method to analyze the REITs in the principal-agent problem, and sorts out the various problems into" moral risk" and" adverseselection" ones. At the same time, to make the model more realistic and concrete, the papergives a case study.Making use the conclusion of the third chapter, the fourth chapter puts forwardcountermeasures from REITs internal restriction mechanism and external environment.And the last part of the paper is the conclusion part, which goes step a further analysis ofREITs improvement necessity and countermeasure, specific for the corresponding policyrecommendations combining with China’s national conditions.The innovation of the paper is the use of the theory of principal-agent making an analysisof REITs parties in interest and motivation, divided management actions can be observedexactly and can not be accurately observed in two cases, and the use of optimal planning ofmathematics method based on the utility maximization principle of investors, fund trustee,and fund management respectively can design an optimal incentive contract. The paperbelieves that the three interests can be unified together. According to the strategicmanagement of enterprises in the internal and external environmental factors, mathematicalanalysis of the results specific for REITs on the internal mechanism of the design andimprovement of the external environment two aspects will promot the healthy development ofour country REITs further favorabally.Real estate financing mode innovation for China’s capital market and even the entirenational economy healthy development all has the vital significance, but whether it iscurrently China’s existing system environment and legal environment, or" Quasi-REITs " inthe form of real estate investment trust products are unable to meet the real estate financingmode innovation of this requirement, and the REITs appear to be imperative. And it appearsthat bringing up a qualitative change still needs various efforts in current situation. Therefore,this article only focuses on the most prominent of the principal-agent problem, and theconclusion may also have immature points, its target is to offer a few ideas and some policysuggestions for REITs development in China to.