Corporate Governance and Performance in the Market for Corporate Control: The Case of REITs

Abstract

We examine 132 mergers and acquisitions by Real Estate Investment Trusts (REITs) during 1997-2006 and explore the relationship between acquirer external and internal corporate governance mechanisms and announcement abnormal returns. We argue that in regulated industries with absent active takeover market, the importance of outside governance mechanisms is diminished and substituted by internal governance controls. We focus on the REIT industry. We find that bidder returns are higher for REITs with smaller boards, with more experienced CEOs, but with shorter tenure. Acquirers' announcement returns are also significantly and positively related to higher ownership by their CEOs and board directors. We find no significant relationship between presence of staggered board and abnormal bidder returns, which supports our hypothesis that anti-takeover defense measured have reduced importance for REITs.

Keywords: Corporate Governance, Mergers, Corporate Control, Real Estate Investment Trusts