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Value Creation and Governance Structure in Reit Mergers

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  • Robert Campbell
  • Chinmoy Ghosh

    ()

  • C. Sirmans

    ()

Abstract

The Umbrella Partnership REIT (UPREIT) structure has become the dominant form of organization for U.S. REITs. We examine the utility of this corporate structure from a new perspective, finding evidence that convertible securities issued by UPREITs in payment for properties acquired from private sellers often function as instruments of corporate control, aligning the interests of new executives acquired in the transaction with those of the purchasing REIT’s shareholders. We also find evidence that these financial arrangements are used to signal information regarding the firm’s future prospects. We use a sample of 53 public–private mergers 1995–2001, in which the acquirer is a publicly traded REIT. We find that wealth effects from central managerial changes are positively related to the degree to which payment takes the form of convertible equity units of UPREIT subsidiaries, and to the minimum lock-up period for those units prior to conversion. The positive effects of longer lock-ups are evidence that financing structure can be used to reduce agency and information costs related to managerial restructuring in public–private mergers. Copyright Springer Science + Business Media, Inc. 2005

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Bibliographic Info

Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 31 (2005)
Issue (Month): 2 (September)
Pages: 225-239

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Handle: RePEc:kap:jrefec:v:31:y:2005:i:2:p:225-239

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Web page: http://www.springerlink.com/link.asp?id=102945

Related research

Keywords: Asian REITs; REITs; UPREITs; mergers; public–private mergers; corporate control; management incentives; convertible equity; lock-ups; capital gains;

References

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  1. Robert D. Campbell & Chinmoy Ghosh & C. F. Sirmans, 2001. "The Information Content of Method of Payment in Mergers: Evidence from Real Estate Investment Trusts (REITs)," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(3), pages 361-387.
  2. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  3. Mehran, Hamid, 1995. "Executive compensation structure, ownership, and firm performance," Journal of Financial Economics, Elsevier, vol. 38(2), pages 163-184, June.
  4. Sudip Datta, 2001. "Executive Compensation and Corporate Acquisition Decisions," Journal of Finance, American Finance Association, vol. 56(6), pages 2299-2336, December.
  5. Morgan, Angela G. & Poulsen, Annette B., 2001. "Linking pay to performance--compensation proposals in the S&P 500," Journal of Financial Economics, Elsevier, vol. 62(3), pages 489-523, December.
  6. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
  7. Jim Clayton & Greg MacKinnon, 2000. "Measuring and Explaining Changes in REIT Liquidity: Moving Beyond the Bid-Ask Spread," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(1), pages 89-115.
  8. Courteau, Lucie, 1995. "Under-Diversification and Retention Commitments in IPOs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(04), pages 487-517, December.
  9. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1990. " Do Managerial Objectives Drive Bad Acquisitions?," Journal of Finance, American Finance Association, vol. 45(1), pages 31-48, March.
  10. Shang-Jin Wei & Gaston Gelos, 2002. "Transparency and International Investor Behavior," IMF Working Papers 02/174, International Monetary Fund.
  11. Mehran, Hamid & Nogler, George E. & Schwartz, Kenneth B., 1998. "CEO incentive plans and corporate liquidation policy," Journal of Financial Economics, Elsevier, vol. 50(3), pages 319-349, December.
  12. Mikkelson, Wayne H. & Partch, M. Megan, 1988. "Withdrawn Security Offerings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(02), pages 119-133, June.
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Citations

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Cited by:
  1. Zhilan Feng & Chinmoy Ghosh & C. Sirmans, 2007. "Director Compensation and CEO Bargaining Power in REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 225-251, October.
  2. Kiplan Womack, 2012. "Real Estate Mergers: Corporate Control & Shareholder Wealth," The Journal of Real Estate Finance and Economics, Springer, vol. 44(4), pages 446-471, May.
  3. Robert Campbell & Erasmo Giambona & C. Sirmans, 2009. "The Long-Horizon Performance of REIT Mergers," The Journal of Real Estate Finance and Economics, Springer, vol. 38(2), pages 105-114, February.
  4. Robert Campbell & Chinmoy Ghosh & Milena Petrova & C. Sirmans, 2011. "Corporate Governance and Performance in the Market for Corporate Control: The Case of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 42(4), pages 451-480, May.
  5. David Ling & Milena Petrova, 2011. "Why Do REITs Go Private? Differences in Target Characteristics, Acquirer Motivations, and Wealth Effects in Public and Private Acquisitions," The Journal of Real Estate Finance and Economics, Springer, vol. 43(1), pages 99-129, July.
  6. Robert Campbell & Nancy White-Huckins & C. Sirmans, 2006. "Domestic and International Equity REIT Joint Ventures: Structuring Corporate Options," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 275-288, May.

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