Corporate Governance and Performance in the Market for Corporate Control: The Case of REITs
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We examine 132 mergers and acquisitions by Real Estate Investment Trusts (REITs) during 1997–2006 and explore the relationship between acquirer external and internal corporate governance mechanisms and announcement abnormal returns. We argue that in regulated industries with absent active takeover market, the importance of outside governance mechanisms is diminished and substituted by internal governance controls. We focus on the REIT industry. We find that bidder returns are higher for REITs with smaller boards, with more experienced CEOs, but with shorter tenure. Acquirers’ announcement returns are also significantly and positively related to higher ownership by their CEOs and board directors. We find no significant relationship between presence of staggered board and abnormal bidder returns, which supports our hypothesis that anti-takeover defense measures have reduced importance for REITs.
KeywordsCorporate governance Mergers Corporate control Real Estate Investment Trusts
We gratefully acknowledge the comments of Crocker Liu, Brent Ambrose, participants in the 2007 European Real Estate Society Conference, 2008 Asian Real Estate Society Meeting, our discussant, David Downs; conference participants in the 2008 International AREUEA Meeting; Nils Kok, and Desmond Tsang. We thank Patrick Chan and Yawei Yang for their excellent research assistance.
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