How Does the Market for Corporate Control Function for Property Companies?

Abstract

We investigate 95 takeovers of property companies all over the world and find that only 2 of those are hostile. To determine the effectiveness of the market for corporate control, we first study characteristics of targets and acquirers compared to a control sample, using the complete global universe of listed property companies during the most recent takeover wave (1999 - 2004). We find that the inefficient management hypothesis holds for both REITs and non-REITs, as targets exhibit significant underperformance before takeovers. In the second part of this study, we investigate shareholder wealth effects following takeovers and confirm previous findings that abnormal returns for targets and bidders are distinctly different for the real estate sector. Moreover, we show that this difference not only holds for REIT-to-REIT mergers, but also for mergers of real estate firms without a REIT-status.

Keywords: Corporate Governance, Mergers and Acquisitions, Real Estate

JEL Classification: G30, G34