The Performance of REIT Acquirers in the Post-Merger Period

Abstract

Executive SummaryMergers and acquisitions (M&As) are a feature of modern economies. However, research on conventional bidding firms in M&As has shown, on average, shareholders are worse off in the long-run (Alexandridis, Mavrovitis, and Travlos, 2012). We examine the long-term post-merger performance of U.S. equity real estate investment trusts (REITs) to see whether this underperformance extends to the largest REIT sector in the world. In contrast to the earlier REIT data samples used by Campbell, Giambona, and Sirmans (2009), we find, prior to the macroeconomic event of the financial crisis, that existing shareholders of bidding firms earn significant and positive abnormal returns. This outcome supports the synergy motive for M&As in the REIT sector. Results from announcements occurring after the onset of the financial crisis show signs of negative and significant abnormal returns, suggesting these M&As were driven by the agency and/or hubris motive.