Market valuation of real estate finance mergers: a note

Purpose - Real estate finance institutions as well as the mortgage banking landscape have undergone a profound restructuring since the late 1980s. This study seeks to examine the value implications of 69 domestic and cross-border merger and acquisition (M&A) deals of exchange-listed real estate finance institutions. Design/methodology/approach - To identify relevant M&A transactions between 1995 and 2002 the following data sources are used: Thomson Financial SDC (Securities Data Company - Mergers and Acquisitions Database), Bloomberg, and Computasoft M&A Data. To assess the value implications of M&A standard event study methodology is used, which relies on the market adjusted model and the market model. Cumulated abnormal returns stemming from the market model and the market adjusted model are calculated for four different event windows. Findings - The results document that shareholders of targets earn, at least in the closest analyzed interval, significant positive abnormal returns. There are no significant abnormal returns accruing to the shareholders of the bidders in any of the analyzed intervals. CARs are slightly negative in two of the four event windows, and positive in the remaining two. Hence, M&A transactions cannot be considered a clear success. Nor, however, is any significant evidence found that they destroy value. Originality/value - Since market valuations of mergers and acquisitions depend on industry-specific circumstances, this paper explores value effects for a specific sector, namely the real estate finance sector. It shows that real estate finance transactions are beneficial for target shareholders. In addition, the results indicate that these transactions do not significantly destroy value for bidding companies. This result contradicts prior evidence for the related banking industry.