Market reactions towards related party transactions: Evidence from SREITs

Abstract

Singapore REIT market has rapidly grown in both the average size of the REIT and the number of REITs. The most important way for a REIT to grow is through acquisitions. However, it remains inconclusive whether the public has reacts favorably towards property acquisitions done by REITs. The paper applies the event study methodology to analyze the market reactions towards announcements of 183 property acquisitions done by 25 Singapore REITs within the period 2002-2014. It is observed that the market reacts positively towards property acquisitions within a short window interval around the announcements. In addition, the paper has gone further to examine the market responses towards different characteristics of acquisitions namely related party transactions, location and transaction volume. Moreover, the paper has attempted to establish the relationship between related party transactions and transaction volume. Positive relationships between related party transactions and portfolio acquisitions as well as between non-related party transactions and single acquisitions have been observed from the data.