Motivated Investors and Operational Efficiency: The Case of <scp>REITs</scp>

ABSTRACT This study evaluates the role of the motivated institutional investor in enhancing firm performance through improvements in operational efficiency, a necessary precursor to better operating results, stock returns, and firm value, using a sample of real estate investment trusts (REITs). Our results suggest that the mere presence of institutional owners is unrelated to firm‐level operational efficiency, whereas a large concentration of motivated institutional owners significantly improves efficiency. This result is more substantial for larger, highly leveraged firms and is robust to tests for endogeneity, self‐selection, and reverse causality. We also find that increased motivated institutional ownership leads to significant efficiency gains, while reductions have no impact on efficiency. Our findings indicate that motivated institutional owners improve managerial discipline through operating cost‐control. We advance the literature by acknowledging the different roles and types of institutional investors in the market, highlighting the impact of specific types on firm operations, performance, and returns. We link motivated investors to efficiency gains as a channel to higher firm value.