Does Subprime Mortgage Crisis Influence Risk Appetite of US REITs Investors: A Study on Domestic and Cross-border M&A

Abstract

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

Date of Award	2017 Jun 28
Original language	English
Supervisor	Tse-Shih Wang (Supervisor)