This study investigates long-term abnormal market performance following REIT mergers during 1994-2001. We find strong evidence in favor of the null hypothesis of no long horizon abnormal performance in stock-financed REIT mergers, either when the target is public or when it is private. This result implies that REIT mergers are not bad news for long-term REIT shareholders. By comparison, Loughran and Vijh (1997) report that non-REIT firms underperform their benchmark by 25% in stock-financed mergers. Our results support information signaling theory following Damodaran, John and Liu (1997) as the correct explanation for acquirer underperformance in stock-financed mergers among conventional firms. Stock financing would not contain the same negative information when the acquirer is a REIT, since cash flow constraints upon REITs are greater, making stock the expected method of financing. JEL Classifications: G14, G34
[1]
C. Sirmans,et al.
The Information Content of Method of Payment in Mergers: Evidence from Real Estate Investment Trusts (REITs)
,
2001
.
[2]
A. Damodaran,et al.
The determinants of organizational form changes: evidence and implications from real estate
,
1997
.
[3]
Jerold B. Warner,et al.
Measuring long-horizon security price performance
,
1997
.
[4]
E. Fama.
Market Efficiency, Long-Term Returns, and Behavioral Finance
,
1997
.
[5]
Richard L. Smith,et al.
Market Discounts and Shareholder Gains for Placing Equity Privately
,
1993
.
[6]
N. Travlos,et al.
Corporate Takeover Bids, Methods of Payment, and Bidding Firms' Stock Returns
,
1987
.
[7]
W. Breen,et al.
Sample‐Dependent Results Using Accounting and Market Data: Some Evidence
,
1986
.