Market reactions of asset acquisition and disposition : announcements by property companies and REITS

Abstract

For listed-property companies and REITs, real estate constitutes a substantial component in their balance sheets due to their core business are inherently property-related. Therefore, this paper aims to investigate whether property acquisition and disposition activities performed by property-related firms are value-creating or the market simply treats these activities as part of their business which does not create value. If there are truly value-creations on the firm’s value and the stock market does react positively, then, where do these value creations originate from?

This dissertation adopts a standard event-study methodology to examine the market reactions to property acquisition and disposition announcements made by 28 publicly-listed property companies and 25 REITs in Singapore. This study uses evidence from year 2001 through to 2011. It is found that on average cumulative abnormal returns (CARs) basis, both acquisition and disposition activities announced by property companies and REITs have positive wealth effects over the window period of (-5,+5) days. Additionally, acquisitions and dispositions announced by property companies are also found to have higher average CARs than REITs.

This paper goes further to explore the drivers behind property acquisition and disposition by using past literature and attempts to explain the market reactions observed with these drivers.