Market discounts and shareholder benefits: evidence from Australian REIT private placements. Issue 6 (19th August 2014)

• Record Type: Journal Article
• Authors: Ratcliffe, Christopher; Dimovski, Bill; French, Nick
• Is Part Of: Journal of property investment & finance. Volume 32:Issue 6(2014)
• Publication Date: 2014-08-19
• Subjects: Real estate investment -- Great Britain -- Periodicals; Real property -- Valuation -- Great Britain -- Periodicals; Real estate development -- Great Britain -- Finance -- Periodicals; 332.6324094105
• DOI: 10.1108/JPIF-05-2014-0031
• Languages: English
• ISSNs: 1463-578X

Abstract

<abstract> <title> <x content-type="archive" xml:space="preserve">Abstract</x> </title> <sec sec-type="purpose"> <title>Purpose</title> <p>The purpose of this study is to examine the impacts of private placement announcements by Australian Real Estate Investment Trusts (A-REITs) on existing shareholders. The study examines 96 A-REIT private placements from January 2000 to December 2012. </p> </sec> <sec sec-type="design|methodology|approach"> <title>Design/methodology/approach</title> <p>Utilising event study methodology we examine the impact on existing shareholders wealth by measuring the abnormal returns around the placement announcement. We extend the analysis to model the A-REITs abnormal returns against a number of explanatory variables to investigate the possible drivers for the observed event study results. </p> </sec> <sec sec-type="findings"> <title>Findings</title> <p>Our results support the information signalling hypothesis, in that existing investors in A-REITs earn negative and significant cumulative abnormal returns of -1.3% over the three-day event window [-1, +1]. This result is in contrast to prior studies conducted on industrial firms, for example; Hertzel and Smith (1993), Krishnamurthy et al. (2005) and Wruck and Wu (2009). </p> </sec> <sec sec-type="practical implications"> <title>Practical implications</title> <p>Regression analysis shows A-REITs trading at a premium to net tangible assets and A-REITs that use placement funds for their core business have a positive impact on announcement abnormal returns.</p> </sec> <sec sec-type="originality|value"> <title>Originality/value</title> <p>This paper adds to the existing literature surrounding private placements and is the first paper, to the authors' knowledge, to examine the impact of Australian REITs. </p> </sec> </abstract>