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Beyond friendly acquisitions: the case of REITs

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Abstract

Unlike operating companies, acquisitions between Real Estate Investment Trusts (REITs) are friendly and acquirers have been previously found to experience positive announcement effects. This study looks beyond stock response and long term performance and finds that overconfidence motivates REIT managers to acquire other firms or assets within the industry. We find that larger, more profitable, and less transparent REITs with fewer growth opportunities are more likely to become acquirers. We further find that top managers tend to personally buy more shares prior to the acquisition announcement and then sell more shares afterward. Our empirical evidence lends support to the hubris hypothesis.

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Notes

  1. We also use the method employed by Ikenberry et al. (1995) to form the pseudo-portfolios to compute the empirical p value for BHARs, and the results are similar.

  2. We distinguish whether the acquirers and the targets belong to the same conglomerate by their parent company names and CUSIP numbers.

  3. In addition to follow Campbell et al. (2009), we also apply the method provided by Ritter (1991) and the bootstrapping method provided by Ikenberry et al. (1995) to estimate long term performance. Since the results are qualitative similar, we only report the CGS results in here.

  4. We use 1 and 99 % as the upper and lower bounds when trimming the distribution for each variable.

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Acknowledgments

Lu acknowledges financial support from the National Science Council of Taiwan (NSC100-2410-H-002-054-MY3).

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Authors and Affiliations

  1. Department of International Business, College of Management, National Taiwan University, Taipei City, Taiwan

    Chiuling Lu

  2. College of Management, Yuan Ze University, Chung-Li, Taiwan

    Tzujui Mao & Yang-pin Shen

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  1. Chiuling Lu
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  2. Tzujui Mao
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  3. Yang-pin Shen
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Correspondence to Chiuling Lu.

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Lu, C., Mao, T. & Shen, Yp. Beyond friendly acquisitions: the case of REITs. Rev Quant Finan Acc 44, 139–159 (2015). https://doi.org/10.1007/s11156-013-0409-1

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