Abstract We examine the impact of institutional monitoring on capital markets in an asset class with inherently low opportunity for agency risk. Despite the REIT industry's transparency, insufficient institutional oversight can produce adverse market outcomes. To capture shareholder distraction, we adapt the Kempf et al. (2017) measure to REITs, exploiting attention‐grabbing shocks to non‐REIT firms in institutional portfolios. We show that institutional investor distraction leads to higher levels of information asymmetry. In equity markets, we see more frequent stock price crashes and other negative tail events for firms lacking institutional investor attention. In corporate debt markets, these firms have higher credit spreads and lower credit ratings. Our results provide evidence that even a highly transparent sector with low agency risk is not immune to agency conflicts when institutional monitoring is scarce.
Gilstrap et al. (Sun,) studied this question.