Finance Research Letters xxx (xxxx) xxx

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Finance Research Letters

journal homepage: www.elsevier.com/locate/frl

The relative performance of green REITs: Evidence from financial

analysts’ forecasts and abnormal returns
Alain Coën a, *, Aurélie Desfleurs b
a
ESG-UQÀM, Graduate School of Business, University of Quebec in Montreal and Ivanhoe-Cambridge Real Estate Chair, H3C 3P8, Montreal,
Canada
b
Department of Accounting, Graduate School of Business, University of Sherbrooke, J1K 2R1, Sherbrooke, Canada

A R T I C L E I N F O A B S T R A C T

JEL Classification: The aim of this study is to analyze and compare the financial analysts’ forecasts accuracy and
G12 bias, and the abnormal earnings announcement returns of “green” and “non-green” U.S. real
G14 estate investment trusts (REITs) from 2010 to 2018. First, we document the accuracy and the bias
Keywords: of financial analysts’ earnings and FFO forecasts on “green” and “non-green” REITs. Our results
REITs report that the level of accuracy and the level of optimism are different for both categories.
Financial analysts’ forecasts accuracy
Second, we observe that abnormal stock returns could be related to the adoption of “green” and
Financial analysts’ bias
sustainable measures. Our results shed a new light on the relative performance of REITs and
Cumulative abnormal returns
Green buildings highlight the potential link in the U.S. REIT industry between “greenness” analysts’ forecasts and
abnormal returns on stock markets.

1. Introduction

Most previous studies on green REITs have focused on the impact of “greenness” on operating and financial performance. As
mentioned by Hsieh et al. (2020), there is still a lack of research examining market participants’ perception of “greenness”. Our study
aims to fill this gap by comparing characteristics of financial analysts’ forecasts and market reactions to earnings announcement for
green and nongreen U.S. REITs over the 2010–2018 period.
According to the World Economic Forum (2020), and as reported by Coën et al. (2018) (among many others), the real estate sector
accounts for about 40% of global energy annually and a third of all carbon emissions. Therefore, the analysis of the transmission and
diffusion of buildings green features into operational and financial performances should be a key topic for investors, especially fund
managers and financial analysts.
The impact of greenness on operational and financial performances has been analyzed both at the property and the portfolio levels.
At the property level, the adoption of LEED and Energy Star norms increases operational performance. Bond and Devine (2016) report
higher rental rates, higher sales prices, higher occupancy premiums and lower risks for green properties. At the portfolio level, REITs
are usually used to focus on the operational and financial risks. If the positive link between greenness and operational performance
seems to be acknowledged in the literature (Eichholz et al., 2002; Sah et al., 2013; Leskinen et al., 2020), the impact on REITs’ stock
performance is far less conclusive. Focusing on K-REITs (Singapore) and using ROE, ROA and funds from operations (FFO), Ho et al.
(2013) report a positive link with mixed results, whereas Mariani et al. (2018) demonstrate a negative impact for European REITs.

* Corresponding author.
E-mail addresses: coen.alain@uqam.ca (A. Coën), Aurelie.desfleurs@usherbrooke.ca (A. Desfleurs).

https://doi.org/10.1016/j.frl.2021.102163
Received 15 February 2021; Received in revised form 15 May 2021; Accepted 19 May 2021
Available online 26 May 2021
1544-6123/© 2021 Elsevier Inc. All rights reserved.

Please cite this article as: Alain Coën, Aurélie Desfleurs, Finance Research Letters, https://doi.org/10.1016/j.frl.2021.102163
A. Coën and A. Desfleurs Finance Research Letters xxx (xxxx) xxx

Eichholz et al. (2012) conclude that there is no significant relation between the greenness of real estate properties and U.S. REITs’
abnormal returns. Sah et al. (2013) as Fuerst (2015) identify a significant link between financial and sustainability performances. Their
approaches have serious drawbacks: their findings and results are model dependent. Focusing on alpha estimated with a standard
Fama and French (1993) model, their results are not robust and become statistically nonsignificant. More recently, using robust
econometric methods applied to a large sample of normalized risk-adjusted performance measures corrected for illiquidity, Coën et al.
(2018) report that the performance measures for non-green REITs are often statistically higher.
The range of reported benefits for green building is wide, but it is still not clear whether the benefits exceed the investments and
costs needed to achieve the certification, and how it might affect REITs’ earnings and cash flows. In this case, does it make them more
difficult to forecast for green REITs? And does it change market reactions when these REITs disclose their results? To our knowledge,
our study is among the first to address these questions.
Our contribution to the financial literature is twofold. First, our empirical findings add to the green finance literature by assessing
the effect of “greenness” for market participants. Our results report that FAF accuracy for funds from operations (FFO) is not statis­
tically different for green and non-green REITs, while FAF bias exhibits a kind of over-optimism for “greenness”. These results are
corroborated by market reaction: investors tend indeed to have higher expectation for green REITs. We also highlight significant
differences between FAF for EPS and for FAF for FFO. Second, we contribute to the sparce literature on financial analysts and REITS.
Downs and Guner (2006), Chen et al. (2013), Ghosh et al. (2013) or Devos et al. (2016) examine some characteristics of analysts
forecasts and recommendations for REITS. Our research is one of the few, with Devos et al. (2019), to really focus on FAF errors for
REITS. Moreover, we analyze not only earnings per share (EPS) forecasts, but also funds from operations (FFO) forecasts for green and
non-green REITS.
The article is organized as follows. The theoretical framework is presented in Section 2 and the methodology is developed in
Section 3. The data are described in Section 4. The results are reported and analyzed in Section 5. Finally, in Section 6, we summarize
the main findings and draw our conclusions.

2. Theoretical framework

2.1. Financial analysts’ forecast (FAF) accuracy and bias

As mentioned by Leskinen et al. (2020), numerous studies report that, at the property level, green certification has a positive impact
on property cash flows and values: higher rental, sale price and occupancy premiums. On the contrary, researches focusing on the
effect of certification on operating expenses are scarce and exhibit contradictory findings. At the portfolio-level, studies of the effects of
greenness on operational and financial performance of REITS also obtain mixed results. It appears difficult to infer the effect of green
certification on net income and funds from operations of REITs. We then assume it could be more difficult for financial analysts to
capture the effects of “greenness” when they forecast green REITs’ EPS and FFO. We make the following hypothesis:
H1: Financial analysts forecasts are less accurate for green than non-green REITs.
Ioannou and Serafeim (2015) observe that analysts have optimistic perceptions of firms with good CSR performance. This point,
confirmed by Khan et al. (2016) and Serafeim (2020), is reflected in better recommendations. In the absence of research on financial
analysts’ perception of “greenness” and effect on FAF bias, especially in the REITs industry, we use their result to make the following
hypothesis:
H2: Financial analysts forecasts are more optimistic for green than for non-green REITs.

2.2. CAR and excess returns

Because of economic and regulatory incentives,1 as reported by Brown and Riddiough (2003), Ott et al. (2005) and Danielsen et al.
(2009), REITs should be more transparent than other industries. The cash flows of REITs are more predictable than those for other
firms. Therefore, earnings signals are expected to be less noisy and abnormal returns should be lower or more muted. As described by
Gyamfi-Yeboah et al. (2012) and Devos et al. (2019), REITs markets benefit from the parallel private commercial real estate markets
providing investors with more performance information. We may note, as an example, that NCREIF2 discloses private real estate
market transaction and information.
As we hypothesize than FAF errors are larger for green than non-green REITs, surprise at the result announcement date by REITs
should also be larger for green REITs and it should induce a higher market reaction. We formulate the following hypothesis:
H3: CAR for green REITs when they disclose their results are greater than for non-green REITs.

3. Methodology

To test our hypotheses, we proceed as follows, for the FAF accuracy and bias and the abnormal returns respectively.

1
To maintain their pass-through tax status, defined by U.S. Federal income tax law, US REITs have to distribute at least 90% of their taxable
earnings as dividends. These regulations explain why REITs must return to the financial markets more frequently to finance growth opportunities.
2
NCREIF: National Council of Real Estate Investment Fiduciaries.

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A. Coën and A. Desfleurs Finance Research Letters xxx (xxxx) xxx

Table 1
Financial Analysts’ Forecast Accuracy: |FAFE| computed (1) with the consensus mean forecasts of Earnings per Share (EPS). (2) with the consensus
mean forecasts of Funds From Operations. (trimmed data to deal with extreme values: 5th and 95th percentiles).
Financial Analysts’ Forecast Accuracy: |FAFE|

Type of forecasts REITS No. of obs. Mean absolute forecast error T-test: mean=0 Median absolute forecast error Standard error

EPS GREEN 486 0.319*** 17.349 0.128 0.462

NON-GREEN 628 0.271*** 13.126 0.085 0.455
TOTAL 1114 0.298*** 21.686 0.107 0.459
FFO GREEN 486 0.027*** 13.875 0.010 0.041
NON-GREEN 628 0.023*** 16.219 0.010 0.037
TOTAL 1114 0.025*** 21.301 0.010 0.039

*, **, *** are significant at 10%, 5% and 1% level, respectively.

Table 2
Financial Analysts’ Forecast Bias: FAFE computed (1) with the consensus mean forecasts of Earnings per Share (EPS). (2) with the consensus mean
forecasts of Funds From Operations. (trimmed data to deal with extreme values: 5th and 95th percentiles).
Financial Analysts’ Forecast Bias: FAFE

Type of forecasts REITS No. of obs. Mean absolute forecast error T-test: mean=0 Median absolute forecast error Standard error

EPS MEAN GREEN 486 0.036** 2.687 0.000 0.356

NON-GREEN 628 0.026** 2.098 -0.020 0.398
TOTAL 1114 0.031** 2.244 -0.012 0.380
FFO MEAN GREEN 486 -0.002 -1.292 -0.002 0.029
NON-GREEN 628 -0.005*** -5.065 -0.004 0.027
TOTAL 1114 -0.004*** -4.600 -0.003 0.028

*, **, *** are significant at 10%, 5% and 1% level, respectively.

3.1. Financial analysts’ forecast (FAF) accuracy and bias

Following an important literature (De Bondt and Thaler, 1990; Lang et al., 2004; Bradshaw et al., 2006), among many others, but
also Devos et al. (2007) and Devos et al. (2019) for REITs), we adopt a standard approach to measure FAF accuracy, but we use two
metrics. The first one is the absolute earnings FAF forecast error for REITS, (|FAFEEPS|). The second one is the same metric but
computed with funds from operations (FFO) instead of earnings. FFO is a specific measure for REITs, currently defined by the National
Association of Real Estate Investment Trusts (NAREIT) as “net income (computed in accordance with GAAP), excluding gain (or loss) from
sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnership and joint ventures”.
The absolute forecast errors, related to FAF accuracy, are then defined as follows:
First metric with EPS:
⃒ ⃒
⃒ ⃒ ⃒ ⃒
⃒FAFEEPS ⃒ = ⃒FEPSj,t − REPSj,t ⃒ (1)
j,t ⃒ REPSj,t ⃒

Second metric with FFO:

⃒ ⃒
⃒ ⃒ ⃒ ⃒
⃒FAFEFFO ⃒ = ⃒FFFOj,t − RFFOj,t ⃒ (2)
j,t ⃒ RFFOj,t ⃒

where FAFEj,t is the financial analysts’ forecast error for EPS or FFO of REIT j and fiscal year t, FEPSj,tis the mean consensus EPS forecast
for REIT j and fiscal year t, REPSj,t is the reported EPS for REIT j and fiscal year t, FFFOj,t is the mean consensus FFO forecast for REIT j
and fiscal year t, RFFOj,t is the reported funds from operations per share form REIT j and fiscal year t .
We also investigate the bias in financial forecasts defined as the relative FAF error (signed forecast error) for earnings and funds
from operations.
The signed forecast errors, related to FAF bias, are then defined as follows:
First metric with EPS:
FEPSj,t − REPSj,t
FAFEEPSj,t = (3)
REPSj,t

Second metric with FFO:

FFFOj,t − RFFOj,t
FAFEFFOj,t = (4)
RFFOj,t

If FAFE is statistically different from zero, the forecast is considered as biased. Financial analysts are qualified as overoptimistic,
when FAFE is statistically positive: the forecast result is indeed higher than the reported result (EPS or FFO). On the contrary, when the

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 A. Coën and A. Desfleurs
Table 3
A: Financial Analysts’ Forecast Accuracy: |FAFE|. Parametric tests (Mean) Green vs Non-green 2010–2018. B: Financial Analysts’ Forecast Accuracy: |FAFE|. Non-parametric tests (Median) Green vs Non-
green 2010–2018.
Panel A

Type of Mean |FAFE|a by type of REIT (Nb. of observations by Average difference of mean |FAFE| between type Adjustedb T-test Pr > |t
forecasts period) of REITs value

GREEN NON-GREEN
EPS 0.319 (486) 0.271 (628) 0.048** 2.01 0.045
FFO 0.027 (486) 0.023 (628) 0.003 1.40 0.163
4

Panel B

Type of Median |FAFE|a by type of REIT (Nb. of observations Kruskal-Wallis test Kruskal-Wallis test Khi2 Pr > Khi2 Median two sample Two-Sided Pr > |
forecasts by period) Khi2 test Z Z|

GREEN NON-GREEN
EPS 0.128 (486) 0.085 (628) 15.888*** <0.0001 3.986*** <0.0001
FFO 0.010 (486) 0.010 (628) 0.737 0.390 0.692 0.489

*, **, *** are significant at 10%, 5% and 1% level, respectively.

a |FAFE| is the absolute forecast error at report date divided by reported EPS or FFO as defined in Eqs. (1) and (2) respectively.
b T-test on mean differences is adjusted using de Satterthwaite’s procedure if necessary, for variance inequality.

Finance Research Letters xxx (xxxx) xxx

A. Coën and A. Desfleurs Finance Research Letters xxx (xxxx) xxx

Table 4
A: Financial Analysts’ Forecast Bias: FAFE. Parametric tests (Mean) Green vs Non-green 2010–2018. B: Financial Analysts’ Forecast Bias: FAFE. Non-
parametric tests (Median) Green vs Non-green 2010–2018.
Panel A

Type of Mean FAFEa by type of REIT (Nb. of Average difference of mean Adjustedb T- Pr > |t|
forecasts observations by period) FAFE between type of REITs test value

GREEN NON-
GREEN
EPS 0.036 (486) 0.026 0.010 0.44 0.659
(628)
FFO -0.002 (486) -0.005 0.003** 2.10 0.035
(628)
Panel B

Fiscal year Median FAFEa by type of REIT (Nb. Kruskal-Wallis test Khi2 Pr > Khi2 Median two Bilateral Two-
end of observations by period) sample test Z Sided Pr > |Z|

GREEN NON-
GREEN
EPS 0.000 (486) -0.020 2.926* 0.087 1.570 0.116
(628)
FFO -0.002 (486) -0.004 7.187*** 0.007 1.962** 0.049
(628)

*, **, *** are significant at 10%, 5% and 1% level, respectively.

a FAFE is the signed forecast error at report date divided by reported EPS or FFO as defined in Eqs. (3) and (4) respectively.
b T-test on mean differences is adjusted using de Satterthwaite’s procedure if necessary, for variance inequality.

difference is statistically negative, analysts are considered as pessimistic.

3.2. CAR and excess returns

Following the standard event study literature, we compute abnormal returns around annual FFO announcements. The cumulative
abnormal return (CAR) is the difference between the stock return and the expected return, measured by the CAPM and the Fama-
French asset pricing model (with MKT, SMB, HML: market, size and book-to-market factors) .3
We use two metrics: the CAR and the standardized CAR (SCAR) as suggested by the seminal work of Patell (1976).

4. Data sources and descriptive statistics

We use three sources of data for the fiscal period from 2010 to 2018. We draw the data on EPS and FFO analysts’ forecasts and
actual earnings from the International Brokers Estimate System (I/B/E/S) U.S. Summary database. We retain the last consensus
forecasts issued before earnings disclosure date. We further require at least two analysts for each REIT-year pair. We winsorize
forecasts errors at the 5th and 95th percentiles to minimize the effects of outliers. REIT daily abnormal returns around the event date
are calculated based on the value-weighted daily return data from the Center for Research in Security Prices (CRSP). We include a
REIT-year pair in our sample when EPS and FFO forecast errors and CAR can be computed. Following the method developed by
Eichholtz et al. (2012), we define the degree of “greenness” from financial statements of Compustat database. As suggested by Eicholtz
et al. (2012), Sah et al. (2013) and Coën et al. (2018) (among others in the devoted literature), REITs are qualified as “green” if they
own buildings certified by the U.S. Green Building Council’s LEED program, or buildings that have received an ENERGY STAR cer­
tificate from the Environmental Protection Agency (EPA), as disclosed in the financial statements.
As reported by Table 1, we have a sample of 1114 REIT-year observations for the full period (2010–2018) for EPS and FFO forecasts
(486 observations for green REITs and 628 for non-green REITs) .4
To highlight the relative importance of FFO forecasts in the REIT industry, we report in the appendix financial coverage for both
metrics. The median number of analysts for FFO is 9 for the full sample, while it is only 3 for the EPS. We may also note, as a stylized
fact, that the mean number of financial analysts is statistically higher at 1% for FFO related to green REITs compared to non-green
REITs (respectively 10.482 vs 8.758), while the reverse is observed for EPS (respectively 3.297 for green REITs and 4.468 for non-
green: the difference is statistically significant at 1%). We have also controlled for a hypothetical size effect. We note that the
mean capitalization and the median capitalization are not statistically different for green and non-green REITs, as reported in the
detailed appendix.
For our whole sample of REITs, we observe that |FAFEEPS| and |FAFEFFO| are always statistically significant at 1%. This indicates
that reported EPS and FFO are statistically different from the estimates, highlighting a lack of accuracy. Besides, the mean absolute

3
As defined on Kenneth French’s website: https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
4
We have the same results when we use the median forecast. Results are available upon request.

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A. Coën and A. Desfleurs Finance Research Letters xxx (xxxx) xxx

Table 5
A: Cumulative abnormal returns for earnings and FFO surprises: green vs non-green REITs (2010–2018): CAPM. B: Cumulative abnormal returns for
earnings and FFO surprises: green vs non-green REITs (2010–2018): Fama-French asset pricing model.
Panel A: Market model CAPM: CAR(-1,1) TOTAL GREEN NON-GREEN Test for Equality of SCAR among
groups: GREEN versus NON-GREEN

Fisher Test, F (Pr > F) Wilcoxon Two-sample

Test, Z (Pr > |Z|)
POSITIVE SUPRISES ONLY
N 576 215 361
Mean Cumulative Abnormal Return% -0.098 -0.221 0.107 (0.068)
(Sign t-stat) (-1.083) (-1.315)
Mean Cumulative Standardized -0.050 -0.128 0.082 (0.373) 2.53 (0.112) 1.46 (0.144)
Abnormal Return (Cross-sectional t- (-0.708) (-1.559)
stat))
NULL SUPRISES ONLY
N 299 140 159
Mean Cumulative Abnormal Return% -1.24*** -1.33*** -1.14***
(Sign t-stat) (-5.840) (-5.154) (-3.042)
Mean Cumulative Standardized -0.576*** -0.636*** -0.508*** 0.49 (0.485) 0.81 (0.417)
Abnormal Return (Cross sectional t- (-6.501) (-5.053) (-4.098)
stat)
NEGATIVE SUPRISES ONLY
N 197 91 106
Mean Cumulative Abnormal Return% -0.703** -1.260*** -0.058
(Sign t-stat) (-2.351) (-3.496) (-0.314)
Mean Cumulative Standardized -0.334*** -0.590*** -0.035 7.03*** (0.008) 2.743*** (0.006)
Abnormal Return (Cross sectional t- (-3.026) (-3.898) (-0.179)
stat)

Panel B: Fama-French model : CAR(-1,1) TOTAL GREEN NON-GREEN Test for Equality of SCAR among
groups: GREEN versus NON-GREEN

Fisher Test, F (Pr > F) Wilcoxon Two-sample

Test, Z (Pr > |Z|)
POSITIVE SUPRISES ONLY
N 576 215 361
Mean Cumulative Abnormal Return% -0.098 -0.208 0.086
(Sign t-stat) (-0.750) (-0.789) (0.204)
Mean Cumulative Standardized -0.053 -0.169 0.072 2.21 1.371
Abnormal Return (-0.715) (-1.519) (0.301) (0.138) (0.171)
(Cross-sectional t-stat))
NULL SUPRISES ONLY
N 299 140 159
Mean Cumulative Abnormal Return% -1.27*** -1.37*** -1.15***
(Sign t-stat) (-6.072) (-5.154) (-3.380)
Mean Cumulative Standardized -0.604*** -0.675*** -0.524*** 0.67 0.15
Abnormal Return (-6.779) (-5.342) (-4.204) (0.412) (0.294)
(Cross sectional t-stat)
NEGATIVE SUPRISES ONLY
N 197 91 106
Mean Cumulative Abnormal Return% -0.774** -1.370*** -0.079
(Sign t-stat) (-2.778) (-3.691) (-0.104)
Mean Cumulative Standardized -0.370*** -0.647*** -0.047 7.86*** 2.976***(0.003)
Abnormal Return (-3.179) (-3.925) (-0.246) (0.005)
(Cross sectional t-stat)

Robust t-stat are reported into parentheses.

*, **, *** are significant at 10%, 5% and 1% level, respectively.

forecast error is far more important for EPS than FFO (0.298 versus 0.025) for the global sample: financial analysts have more difficulty
to forecast EPS than FFO, as observed by Gyamfi-Yeboah et al. (2012), Downs and Güner (2006), and Devos et al. (2019).
We report in Table 2 the FAF bias to analyze the level of optimism among financial analysts. For the global sample, FAFEEPS is
statistically positive (0.031). We then observe, as Devos et al. (2007), that analysts seem optimistic when they forecast REITs’ EPS. On
the contrary, FAFEFFO is statistically negative (-0.004). As in Chen et al. (2013), analysts underestimate FFO.5

5
As suggested by an anonymous referee, we have also analyzed the EBITDA, even if this metric is less reported by IBES and very rarely used by
financial analysts who focus on EPS and especially FFO to make their recommendations in the REITs industry. |FAFEEBITDA| and FAFEEBITDA obtained
for 618 observations are respectively 0.104 and 0.049 and highly significant at 1%, confirming the comments made for FAF accuracy and the FAF
bias. Detailed results are available upon request.

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A. Coën and A. Desfleurs Finance Research Letters xxx (xxxx) xxx

For our full sample of REITs, analysts seem less accurate and more optimistic when they forecast EPS than FFO. In the next section,
we analyze FAF accuracy and bias by type of REITs, before focusing on the cumulative abnormal returns (CAR).

5. Analysis of FAF and CAR for green and non-green REITs

5.1. Analysis of FAF accuracy and bias for green REITs

Analysis of FAF accuracy for green REITs

In Table 3A, we compare mean absolute EPS or FFO forecast errors between green and non-green REITs. We observe that |FAFEEPS|
is statistically higher for green REITs (0.319) than for non-green REITs (0.271), while the difference for |FAFEFFO| is positive but not
statistically significant. It seems more difficult for financial analysts to forecast EPS for green than for non-green REITs. This trend is
not statistically significant for FFO. These results partially confirm our hypothesis H1, mainly for earnings forecasts. One of the main
differences between EPS and FFO lies in the inclusion of gain (or loss) from sales of property in REITs’ earnings. If energy labels and
green building certifications have an effect on transaction price, as observed by Holtermans and Kok (2019), Das and Wiley (2014),
Dermisi and McDonald (2011) among others, financial analysts may indeed have difficulties to estimate this effect on REITs’ earnings.
Financial analysts’ forecasts for EPS are not more optimistic for green than for non-green REITs.
To validate our results, we also compute non-parametric tests based on the median absolute forecast error. As reported in Table 3/
B, this metric is also statistically higher (at 1%) for green REITs whatever the test used for EPS forecasts, but there is no significant
difference of medians for FFO forecasts. Thus, our results for green REITs are consistent with previous studies led in the REITs industry
in a different context by Holtermans and Kok (2019), Devos et al. (2016), Das and Wiley (2014), Devos et al., (2007), among others.
Analysis of FAF bias for green REITs
In Table 4A, we first note that the average difference of mean FAFEEPS between green (0.036) and non-green (0.026) REITs is
positive but not statistically different. If the explanation for greater analysts’ EPS forecast errors in the case of green REITs is indeed
their difficulty to estimate the effect of energy labels and green building certifications on transaction sales premiums, as suggested by
Holtermans and Kok (2019) and Dermisi and McDonald (2011), they don’t systematically overestimate this effect. FAF for EPS are not
more optimistic for green than for non-green REITs. When we focus on EPS forecast errors, we cannot confirm our hypothesis H2 that
should be rejected.
In the case of FFO forecasts, we observe that the FAF bias is negative and statistically significant only for non-green REITs at the 1%
level (-0.005). When we compare this metric for green REITs (-0.002), we note that the average difference of mean FAFEFFO is sta­
tistically significant and negative. This point illustrates a certain kind of over-pessimism among analysts for non-green REITs.
When we focus on the median of FAFE, this result is confirmed for FFO (at 1%) and in a lesser extent for EPS (at 10%). This leads to
the conclusion that financial analysts are more optimistic for green REITs. They indeed exhibit a kind of over-pessimism for non-green
REITs. Focusing on FFO forecast errors, we cannot accept our hypothesis H2. Nevertheless, we show that financial analysts are more
pessimistic for non-green REITs.

5.2. Analysis of CAR for green REITs

While there is an extensive literature documenting unusual and significant equity pricing activity around earnings announcement,
since the pioneering work of Ball and Brown (1968), Beaver (1968), Bernard (1992), Brown (1997), Bradshaw et al., (2006),
Richardson et al., (2010) among many others, our study is, to the best of our knowledge, among the first to analyze the relationships
between financial analysts’ forecasts and abnormal returns for green and non-green REITs. We compute the cumulative abnormal
returns, CAR (and thus the standardized cumulative abnormal returns, SCAR), using both the CAPM and the Fama-French asset pricing
model. We divide our sample of surprises in three sub-samples: namely positive surprises only (when reported earnings or FFO are
higher than forecasted), negative surprises only (when the reported earnings or FFO are lower than forecasted) and null surprises
(when there is no surprise).
For our full sample and when we use the market model to compute CAR, Table 5A shows that negative or null FFO surprises are
associated with negative and significant CAR. The market reacts unfavorably to negative FFO surprise announcements, but also to null
surprise. It suggests that investors tend to treat a zero surprise as bad news. When the results for REITs beat analysts’ estimates, CAR are
not statistically significant. Positive FFO surprise announcements do not seem to contain pricing relevant information.
For green and non-green REITs, CAR and SCAR, as well as the difference between the two groups, are not statistically significant for
positive FFO surprises. On the contrary, CAR and SCAR are negative and highly significant at 1% for negative surprises. This result is
reported for green REITs for both asset pricing models specifications. When the CAPM is used the difference is highly significant at 1%,
meaning that investors tend to overreact for bad news related to green REITs (-0.590), while they are indifferent for non-green REITs
(-0.035).
When the Fama-French asset model is used, the previous results are confirmed. Negative surprises lead to negative abnormal returns
for green REITs, highly significant for CAR (-1.370 and t-stat: -3.691) and SCAR (-0.647 and t-stat: -3.925), while they are not significant
for non-green REITs. The differences of CAR and SCAR are highly significant at 1%. This result may be interpreted as the confirmation of
the high expectations among investors for green REITs. If FFO are low or negative, they tend to overreact, generating negative abnormal
returns. This point is consistent with the previous study of Coën et al. (2018) who report that green REITs tend to report lower per­
formance at the short term (especially for Jensen’s alpha and information ratio). This negative overreaction is also observed with the
CAPM. Therefore, these results tend to confirm our hypothesis H3. More specifically, we can accept H3 for negative surprises.

7
A. Coën and A. Desfleurs Finance Research Letters xxx (xxxx) xxx

6. Conclusion

In this study, we investigate the impact of greenness on FAF accuracy, FAF bias and CAR for U.S. REITs from 2010 to 2018. We can
draw three main conclusions. First, financial analysts are less accurate when they forecast EPS for green REITs, but the FAF accuracy
for FFO is not statistically different for green and non-green REITs. Second, they tend to be optimistic for green and non-green REITs,
based on EPS, but more pessimistic for non-green REITs, based on FFO. Third, investors exhibit higher expectation for green REITs.
They indeed overreact for negative and even null surprises.
These interesting findings deserve to be analyzed in greater details, using the factors reported by the financial literature devoted to
financial analysts’ behavior. We leave these points for future research.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to
influence the work reported in this paper.

Acknowledgments

We would like to thank two anonymous referees and the editor, Jonathan Batten, for helpful comments. The usual disclaimer
applies.

Appendix A

Table A1. Table A2. Table A3.

Table A1
Coverage for EPS forecasts: green vs non-green REITs (2010–2018).
REITS No. of Mean nb. of Median nb. of Average difference of mean coverage between Adjusteda T-test Pr > |t|
obs. analysts analysts type of REITs value

GREEN 486 3.297 3 1.171*** 5.64 <0.0001

NON- 628 4.468 3
GREEN
TOTAL 1114 3.819 3

*, **, *** are significant at 10%, 5% and 1% level, respectively.

a T-test on mean differences is adjusted using de Satterthwaite’s procedure if necessary, for variance inequality.

Table A2
Coverage for FFO forecasts: green vs non-green REITs (2010–2018).
REITS No. of Mean nb. of Median nb.of Average difference of mean coverage between type Adjusteda T-test Pr > |t|
obs. analysts analysts of REITs value

GREEN 486 10.482 10 1.723*** 5.47 <0.0001

NON- 628 8.758 9
GREEN
TOTAL 1114 9.762 9

*, **, *** are significant at 10%, 5% and 1% level, respectively.

a
T-test on mean differences is adjusted using de Satterthwaite’s procedure if necessary, for variance inequality.

Table A3
Market capitalization: green vs non-green REITs (2010–2018).
REITS No. of Mean capitalization Median capitalization Average difference of mean size between Adjusteda T-test Pr > |
obs. (millions $) (millions $) type of REITs value t|

GREEN 486 5 678 2 759 261.00 0.48 0.633

NON- 628 5 417 2 537
GREEN
TOTAL 1114 5 562 2 667

*, **, *** are significant at 10%, 5% and 1% level, respectively.

a
T-test on mean differences is adjusted using de Satterthwaite’s procedure if necessary, for variance inequality.

8
A. Coën and A. Desfleurs Finance Research Letters xxx (xxxx) xxx

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