The performance of REIT acquirers in the post-merger period

Mergers and acquisitions are a feature of modern economies. However, research on conventional bidding firms in mergers and acquisitions (M&As) has shown, on average, shareholders are worse off in the long-run (Alexandridis, Mavrovitis and Travlos, 2012). This study examines the long-term post merger performance of US Equity Real Estate Investment Trusts (REITs) to see if this under-performance 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.