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Acquisitions by Real Estate Investment Trusts as a strategy for minimization of investor tax liability

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  • Jingyu Li
  • Fayez Elayan
  • Thomas Meyer

Abstract

A key requirement for Real Estate Investment Trusts (REITs) to maintain their corporate tax-exempt status is that 95 percent of income must be distributed as dividents. Receipt of this income imposes a personal tax burden on shareholders. A central tenet of this research is that REIT management is motivated to reduce investors’ personal taxes. This may involve reduction of before-tax income through acquisitions. Market reaction to REIT merger announcements is found to be positive and significant. The evidence developed is more consistent with abnormal returns being related to a tax advantage from acquisitions rather than gaining economies of scale. Copyright Springer 2001

Suggested Citation

  • Jingyu Li & Fayez Elayan & Thomas Meyer, 2001. "Acquisitions by Real Estate Investment Trusts as a strategy for minimization of investor tax liability," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 25(1), pages 115-134, March.
    • Handle: RePEc:spr:jecfin:v:25:y:2001:i:1:p:115-134
    DOI: 10.1007/BF02759690
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    References listed on IDEAS

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    1. Willard McIntosh & Dennis T. Officer & Jeffrey A. Born, 1989. "The Wealth Effects of Merger Activities: Further Evidence from Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 4(3), pages 141-156.
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    6. Elayan, Fayez A & Young, Philip J, 1994. "The Value of Control: Evidence from Full and Partial Acquisitions in the Real Estate Industry," The Journal of Real Estate Finance and Economics, Springer, vol. 8(2), pages 167-182, March.
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    Cited by:

    1. Hong Wang & Yining Sun & Yin Chen, 2009. "Special considerations for designing pilot REITs in China," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 27(2), pages 140-161, March.
    2. 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.
    3. 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.
    4. Julia Freybote & Lihong Qian, 2015. "The impact of asset location on REIT merger decisions," Journal of Property Research, Taylor & Francis Journals, vol. 32(2), pages 103-122, June.

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