How Does the Market for Corporate Control Function for Property Companies?

Eichholtz, Piet; Kok, Nils

doi:10.1007/s11146-007-9061-7

Cited by 45 publications

(68 citation statements)

References 65 publications

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“…In addition, the result supports the argument by Eichholtz and Kok (2008) that, due to their regulatory environment, REITs may be less vulnerable to agency problems. Our results are consistent with prior REIT research by Sahin (2005) who observed insignificant BHARs of +3.56% over the three-year event period.…”

Section: Bhar Resultssupporting

confidence: 78%

The Performance of REIT Acquirers in the Post-Merger Period

Ratcliffe¹,

Dimovski²,

Keneley³

2017

24th Annual European Real Estate Society Conference

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Executive SummaryMergers and acquisitions are a feature of modern economies. However, research on conventional bidding firms in mergers and acquisitions (M&As) has shown, on average, shareholders are worse off in the long-run (Alexandridis, Mavrovitis and Travlos, 2012). This study examines the long-term post merger performance of US Equity Real Estate Investment Trusts (REITs) to see if this underperformance extends to the largest REIT sector in the world. In contrast to the earlier REIT data samples used by Campbell, Giambona and Sirmans (2009), we find, prior to the macroeconomic event of the financial crisis, that existing shareholders of bidding firms earn significant and positive abnormal returns. This outcome supports the synergy motive for M&As in the REIT sector. Results from announcements occurring after the onset of the financial crisis show signs of negative and significant abnormal returns, suggesting these M&As were driven by the agency and/or hubris motive.Keywords REITs, Equity REITs, Mergers and Acquisitions, Post-merger abnormal returns JEL Classifications G11; G14; G34 2 INTRODUCTIONMergers and acquisitions are an ongoing process as markets respond to internal and external pressures.A key issue arising from this activity is the extent to which it promotes efficient market outcomes.From an economic perspective, mergers and acquisitions (M&As) should provide for the efficient management of companies, improved mobility of capital and an efficient allocation of scarce resources (Manne, 1965). However, there is growing evidence of underperformance of bidding firms shares in the years following the M&A announcement (Alexandridis, Mavrovitis and Travlos, 2012, Bessembinder and Zhang, 2013). Jensen and Ruback (1983, p.20) comment 'these post-outcome negative abnormal returns are unsettling because they are inconsistent with market efficiency and suggest that changes in stock prices overestimate the future efficient gains from mergers'. Such arguments are supported by Campbell, Giambona and Sirmans (2009) who argue that these types of results are troubling as they suggest the existence of weak form market efficiency. The ensuing informational problems translate into an inefficient allocation of resources.Whilst the debate surrounding the issue of post merger performance continues, one issue that has received less attention is that of the motivations of acquiring firms. If acquiring firms do not reap the returns expected, why do they engage in such activities? Berkovitch and Narayanan (1993) identify several motives for M&As; namely the synergy motive, the hubris hypothesis and the agency motive.The post-announcement under-performance of acquirers suggests that the motivation for M&As may be a result of hubris and/or agency issues rather than efficiency considerations (Alexandridis, Mavrovitis and Travlos, 2012, Ang, Yingmei and Nagel, 2008, Conn, Cosh, Guest and Hughes, 2005. September 2014 suggest that the REIT M&A market is informationally efficient. We find no significant negative abnormal perfor...

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Section: Bhar Resultssupporting

confidence: 78%

The Performance of REIT Acquirers in the Post-Merger Period

Ratcliffe¹,

Dimovski²,

Keneley³

2017

24th Annual European Real Estate Society Conference

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show abstract

“…There is compelling evidence that the takeover market is ineffective in the REIT sector. For instance, Campbell et al (2005) and Eicholtz and Kok (2008) establish that hostile takeovers are virtually non-existent among REITs. These authors and several others argue that the special regulatory provisions of REITs with respect to dividend distribution, asset structure and ownership composition make it difficult to launch hostile takeovers against REITs.…”

Section: Anti-takeover Provisionsmentioning

confidence: 99%

“…Several authors have documented that hostile takeovers are non-existent among REITs (Campbell et al (2001), Eicholtz and Kok (2008)). This implies that, in general, REIT managers face no serious takeover threat.…”

Section: Anti-takeover Provisionsmentioning

confidence: 99%

“…Certain restrictions in terms of ownership structure also exist, which make control by large blockholders more difficult. Eicholtz and Kok (2008) review how regulatory provisions influence REITs' acquisition strategies. Specifically, they report that takeover targets in REIT mergers are mostly real estate companies with diversified portfolios.…”

Section: Introductionmentioning

confidence: 99%

“…Specifically, they report that takeover targets in REIT mergers are mostly real estate companies with diversified portfolios. If diversification of operations is detrimental to performance, Eicholtz and Kok's (2008) finding implies that underperforming REITs are more likely to become takeover targets. The authors also report that the valuation gain for target REITs is lower than that for conventional firms and attribute this pattern to the regulatory restriction on the type of assets REITs can invest in, which limits their opportunity to consider diverse targets with potentially high synergistic gains.…”

Section: Introductionmentioning

confidence: 99%

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