Elective stock dividend in REITs: market reaction and determinants
Journal of Property Investment & Finance
ISSN: 1463-578X
Article publication date: 21 September 2012
Abstract
Purpose
The purpose of this study is to look at the market reaction to stock dividend announcements of real estate investment trusts (REITs) and further look at their determinants.
Design/methodology/approach
The paper uses standard event methodology for market reaction to determine abnormal returns and CARs. Additionally the paper uses a logistic regression to analyze determinants.
Findings
Using a sample of 37 announcements from fourth quarter 2008 till first quarter 2010, the paper finds a mean negative abnormal return of −1.23 percent on the day of the announcement. Further, following the announcement day, the paper finds a weak significant positive abnormal return on the day after that (+1), which may convey some optimism from the investors. Further, when the paper looks at the characteristics of such REITs, it finds that REITs with higher leverage ratio and larger asset bases are more likely to issue stock dividend. Additionally, the results also indicate that the stock dividend announcement lead to an abnormal turnover of 0.24 percent for these REITs on the day following the announcement. This may suggest an increase in the marketability of the stock dividend REITs after the announcement date.
Practical implications
First, the reaction of the market will help gauge the response of investors to such announcements. This could provide REIT managers information on ex‐ante investor reaction to such dividend decisions. Second, this study will help identify the characteristics of REITs that declare stock dividends. For investors who rely on market trading information, study in this regard will help them to build up their portfolios.
Originality/value
This is the only study that looks exclusively at stock dividends in REITs and the second study to look at stock dividends in REITs in general. It is different from the other study in this field because of its methodology, sample size and some distinct results.
Keywords
Citation
Sah, V. and Zhou, X. (2012), "Elective stock dividend in REITs: market reaction and determinants", Journal of Property Investment & Finance, Vol. 30 No. 6, pp. 583-595. https://doi.org/10.1108/14635781211264531
Publisher
:Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited