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Value Creation and Governance Structure in Reit Mergers

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Author Info
Robert Campbell
Chinmoy Ghosh ()
C. Sirmans ()

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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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File URL: http://hdl.handle.net/10.1007/s11146-005-1373-x
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Publisher 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

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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
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  3. 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. [Downloadable!]
  4. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law & Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  8. Mehran, Hamid & Nogler, George E. & Schwartz, Kenneth B., 1998. "CEO incentive plans and corporate liquidation policy1," Journal of Financial Economics, Elsevier, vol. 50(3), pages 319-349, December. [Downloadable!] (restricted)
  9. Sudip Datta, 2001. "Executive Compensation and Corporate Acquisition Decisions," Journal of Finance, American Finance Association, vol. 56(6), pages 2299-2336, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
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