TY - JOUR
T1 - Do REITs use cash reserves efficiently? Evidence from corporate acquisitions
AU - Ghosh, Chinmoy
AU - Petrova, Milena
AU - Xiao, Yihong
PY - 2012
Y1 - 2012
N2 - We examine the combined impact of corporate governance and excess cash holdings on the propensity of firms to become bidders and engage in value destroying acquisitions. We focus on the REIT market, due to its unique characteristics caused by regulation and the nature of the industry. The lack of active real estate takeover market should lead to entrenchment and exacerbate agency costs. However, given the mandatory high cash payout for REITs, the absence of takeover market should not cause concerns to shareholders. Our analyses reveal that unlike conventional firms, cash-rich REITs are not more likely to become acquirers and acquisitions by cash-rich REITs are not value decreasing. However, similarly to industrial firms, REITs with higher excess cash and lower insider ownership are more likely to become bidders. We interpret our results to be consistent with the hypothesis that agency problems are less severe in real estate and investors are not averse to use of excess cash by REIT managers on intra-industry acquisitions.
AB - We examine the combined impact of corporate governance and excess cash holdings on the propensity of firms to become bidders and engage in value destroying acquisitions. We focus on the REIT market, due to its unique characteristics caused by regulation and the nature of the industry. The lack of active real estate takeover market should lead to entrenchment and exacerbate agency costs. However, given the mandatory high cash payout for REITs, the absence of takeover market should not cause concerns to shareholders. Our analyses reveal that unlike conventional firms, cash-rich REITs are not more likely to become acquirers and acquisitions by cash-rich REITs are not value decreasing. However, similarly to industrial firms, REITs with higher excess cash and lower insider ownership are more likely to become bidders. We interpret our results to be consistent with the hypothesis that agency problems are less severe in real estate and investors are not averse to use of excess cash by REIT managers on intra-industry acquisitions.
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U2 - 10.1016/j.jimonfin.2012.05.019
DO - 10.1016/j.jimonfin.2012.05.019
M3 - Article
AN - SCOPUS:85027956583
SN - 0261-5606
VL - 31
SP - 1953
EP - 1970
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
IS - 7
ER -