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The Long-Horizon Performance of REIT Mergers

Author

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  • Robert Campbell

    ()

  • Erasmo Giambona

    ()

  • C. Sirmans

    ()

Abstract

We study long-horizon shareholder returns in a comprehensive sample of Real Estate Investment Trust (REIT) mergers, to test whether or not the anomaly of post-merger underperformance observed in conventional firms applies to the case of REITs. Constructing synthetic benchmark portfolios controlling for firm size and for book-to-market value ratio, we find that 60-month buy-and-hold abnormal returns for REIT acquirers are significantly negative at approximately −10%, supporting the position that REIT merger acquirers underperform non-merging REITs in the long run. We find no evidence to challenge previous studies reporting positive announcement period returns for acquirers when the target is privately held, but we do find evidence that these positive returns do not persist. The long term performance of acquiring REITs is approximately the same whether the target is public or private. Copyright Springer Science+Business Media, LLC 2009

Suggested Citation

  • 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.
  • Handle: RePEc:kap:jrefec:v:38:y:2009:i:2:p:105-114
    DOI: 10.1007/s11146-007-9085-z
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    References listed on IDEAS

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    1. Claudio Loderer & Kenneth Martin, 1992. "Postacquisition Performance of Acquiring Firms," Financial Management, Financial Management Association, vol. 21(3), Fall.
    2. Robert Campbell & Chinmoy Ghosh & C. Sirmans, 2005. "Value Creation and Governance Structure in Reit Mergers," The Journal of Real Estate Finance and Economics, Springer, vol. 31(2), pages 225-239, September.
    3. Cowan, Arnold R. & Sergeant, Anne M. A., 2001. "Interacting biases, non-normal return distributions and the performance of tests for long-horizon event studies," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 741-765, April.
    4. Langetieg, Terence C., 1978. "An application of a three-factor performance index to measure stockholder gains from merger," Journal of Financial Economics, Elsevier, vol. 6(4), pages 365-383, December.
    5. Pavel G. Savor & Qi Lu, 2009. "Do Stock Mergers Create Value for Acquirers?," Journal of Finance, American Finance Association, vol. 64(3), pages 1061-1097, June.
    6. Olgun Fuat Sahin, 2005. "The Performance of Acquisitions in the Real Estate Investment Trust Industry," Journal of Real Estate Research, American Real Estate Society, vol. 27(3), pages 321-342.
    7. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    8. 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.
    9. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    10. Erasmo Giambona & Carmelo Giaccotto & C.F. Sirmans, 2005. "The Long-Run Performance of REIT Stock Repurchases," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(2), pages 351-380, June.
    11. Agrawal, Anup & Jaffe, Jeffrey F & Mandelker, Gershon N, 1992. " The Post-merger Performance of Acquiring Firms: A Re-examination of an Anomaly," Journal of Finance, American Finance Association, vol. 47(4), pages 1605-1621, September.
    12. Christa H. S. Bouwman & Kathleen Fuller & Amrita S. Nain, 2009. "Market Valuation and Acquisition Quality: Empirical Evidence," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 633-679, February.
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    Citations

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    Cited by:

    1. Chris Ratcliffe & Bill Dimovski & Monica Keneley, 2017. "The Performance of REIT Acquirers in the Post-Merger Period," ERES eres2017_43, European Real Estate Society (ERES).
    2. Ghosh, Chinmoy & Petrova, Milena & Xiao, Yihong, 2012. "Do REITs use cash reserves efficiently? Evidence from corporate acquisitions," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1953-1970.
    3. Chiuling Lu & Tzujui Mao & Yang-pin Shen, 2015. "Beyond friendly acquisitions: the case of REITs," Review of Quantitative Finance and Accounting, Springer, vol. 44(1), pages 139-159, January.
    4. repec:bla:acctfi:v:57:y:2017:i:3:p:855-877 is not listed on IDEAS
    5. 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.

    More about this item

    Keywords

    Real Estate Investment Trusts; REITs; EREITs; Mergers; Buy-and-hold abnormal returns; BHARs; Post-merger performance; G14; G34;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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