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The Announcement Effect of Real Estate Joint Ventures on Returns to Stockholders: An Empirical Investigation

This study compares the market reaction to the announcement of real estate joint venture on returns to stockholders of real estate and non-real estate firms. The main objectives were to examine the presence of a synergy effect associated with real estate joint ventures and to establish whether real estate firms earn higher excess returns due to their unique institutional characteristics (market locality, and/or market segmentation). Two hypotheses were examined: the synergy hypothesis and the informational asymmetries hypothesis. Real estate firms earn higher excess returns when they participate with non-real estate firms than when they participate with real estate firms. The opposite is true for non-real estate firms. Both real estate participants and non-real estate participants earn positive and statistically significant excess returns with no significant difference between the two groups. The result of this study is consistent with the synergy effect as a source of gain from the joint venture. It is also consistent with the notion that real estate firms have institutional characteristics in the form of better information about local real estate markets and/or superior management and technical expertise that allow real estate firms to achieve larger gains from joint ventures at the expense of non-real estate firms.

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Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 8 (1993)
Issue (Month): 1 ()
Pages: 13-26

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Handle: RePEc:jre:issued:v:8:n:1:1993:p:13-26
Contact details of provider: Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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  1. John L. Glascock & Wallace N. Davidson & C.F. Sirmans, 1989. "An Analysis of the Acquisition and Disposition of Real Estate Assets," Journal of Real Estate Research, American Real Estate Society, vol. 4(3), pages 131-140.
  2. Austin J. Jaffe & C. F. Sirmans, 1984. "The Theory and Evidence on Real Estate Financial Decisions: A Review of the Issues," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 378-400.
  3. Asquith, Paul & Bruner, Robert F. & Mullins, David Jr., 1983. "The gains to bidding firms from merger," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 121-139, April.
  4. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  5. R. Ravichandran & J. Sa-Aadu, 1988. "Resource Combination and Security Price Reactions: The Case of Real Estate Joint Ventures," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(2), pages 105-122.
  6. George W. Gau, 1987. "Efficient Real Estate Markets: Paradox or Paradigm?†," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(2), pages 1-12.
  7. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
  8. McConnell, John J & Nantell, Timothy J, 1985. " Corporate Combinations and Common Stock Returns: The Case of Joint Ventures," Journal of Finance, American Finance Association, vol. 40(2), pages 519-36, June.
  9. 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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