DO ACQUISITION STRATEGIES CREATE POSITIVE WEALTH EFFECTS?

Abstract

Acquisitions are vital external growth engines for REITs, in the pursuit of sustainable performance. Many theories have been advanced to explain why mergers and acquisitions take place and their subsequent value effects of either a positive wealth gain or a negative one. As Singapore REIT market develops and matures, substantial number of acquisitions has been made, together with the continued active pursuit of future potential assets. This study offer some initial evidence on the effect of asset acquisitions on shareholders wealth by analyzing 148 acquisition transaction (events) made by REITs listed in Singapore between 2002 and 2008. The event-study shows that there is positive market reaction to asset acquisitions with the acquiring REIT observing a gain of 0.85% over a four-day period after the acquisition announcement. An OLS Regression accounts for the various factors and their evident relationship to returns. It further highlights that variables used to proxy the aggressiveness of REITs have a negative impact on the returns, which signify that the market do not favor aggressive acquisition strategies. On the other hand, when the acquisition reconfirms its geographical focus and posses a balanced and diversified portfolio, the market rewards accordingly.