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.
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Li, J., Elayan, F.A. & Meyer, T.O. Acquisitions by Real Estate Investment Trusts as a strategy for minimization of investor tax liability. J Econ Finan 25, 115–134 (2001). https://doi.org/10.1007/BF02759690
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DOI: https://doi.org/10.1007/BF02759690