||Does Subprime Mortgage Crisis Influence Risk Appetite of US REITs Investors: A Study on Domestic and Cross-border M&A
||Graduate Institute of Finance
Subprime mortgage crisis
This paper compares the risk appetite of US REITs investors with domestic and cross-border M&A announcements under different economic conditions, analyzing the information content in the periods under consideration. Based on a sample of 182 M&A announcements made by US REITs between 2005 and 2010, the evidence shows that they are associated with a positive stock price reaction, averaging 0.73% over a 2-day window. Stratifying the sample into domestic M&A and cross-border M&A across different market conditions, the evidence indicates that the significant positive economic gains that occurred during the subprime mortgage crisis flowed from the pool of domestic M&A announcements. They registered a significant mean abnormal return of 1.86 % over the 2-day window, as opposed to an insignificant 1.28% for the pool of cross-border M&A announcements. Further investigation confirms that since the subprime mortgage crisis, the risk aversion level of US REITs investors has raised due to the panic and uncertainty associated with a financial crisis. Thus, the degree of geographic diversification which has positive influence on abnormal return has increased. In addition, a new variable, the number of states that the REITs firm has properties in is regarded to be effective in analyzing REITs M&A. Along this direction this study paves the way for future deep research confirming that this proxy variable has high explanatory power.
1. Introduction 1
2. Literature review 4
2-1 Domestic & cross-border M&A 4
2-2 M&A of REITs 5
2-3 M&A in the subprime mortgage crisis 5
3. Data and Methodology 7
3-1 Data 7
3-2 Methodology 8
3-2-1 Measuring abnormal returns 8
3-2-2 Multivariate regression model 10
4. Empirical results 14
4-1 Comparing acquirers’ abnormal return in different period and cross-border/domestic deals 14
4-2 Cross-sectional analysis of abnormal returns 16
5. Conclusion 21
6. References 22
AppendixⅠ: 160 domestic M&A announcements 25
AppendixⅡ: 22 cross-border M&A announcements 33
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