Home • PRRES Inc. Journal • Read the Journal

The Intra-Industry Effects of REIT Dividend Announcements

Author/s: Ming-Long Lee, Chia-Wei Lin, Kevin C. H. Chiang, Shew-Huei Kuo

Date Published: 1/01/2012

Published in: Volume 18 - 2012 Issue 1 (pages 35 - 48)

Abstract

This study investigates the intra-industry effects of cash dividend announcements for U.S. real estate investment trusts (REITs). That is, based on the market model framework, this study examines whether a change in an announcing REIT’s dividends has information externality on its peers/rivals. Our results suggest that REIT dividend announcements have contagion effects. In addition, consistent with the existing literature, these contagion effects are found to be asymmetric and more prevalent for dividend-decreasing events.

Download Full Article

Download the Full Article PDF

14445921.2012.11104349.pdf 14445921.2012.11104349.pdf (315kB)

Keywords

Contagion Effect - Dividend - Intra-Industry Effect - Reit

References

  • Ambrose, BW, Lee DW and Peek, J 2007, ‘Comovement after joining an index: spillovers of nonfundamental effects’, Real Estate Economics, 35, 57-90.
  • Balachandran, B, Faff, R and Nguyen, TA 2004, ‘The intra-industry impact of special dividend announcements: contagion versus competition’, Journal of Multinational Financial Management, 14, 369-385.
  • Below, SD and Johnson, KH 1996, ‘An analysis of shareholder reaction to dividend announcements in bull and bear markets’, Journal of Financial and Strategic Decisions, 9, 15-26.
  • Bessler, W and Nohel, T 2000, ‘Asymmetric information, dividend reductions, and contagion effects in bank stock returns’, J ournal of Banking and Finance, 24, 1831-1848.
  • Bhattacharya, S 1979, ‘Imperfect information, dividend policy, and “the bird in the hand” fallacy’, Bell Journal of Economics, 10, 259-270.
  • Bradley, M, Capozza, DR and Seguin, PJ 1998, ‘Dividend policy and cash flow uncertainty’, Real Estate Economics, 26(4), 555-580.
  • Brav, A, Graham, JR, Harvey, CR and Michaely, R 2005, ‘Payout policy in the 21st century’, Journal of Financial Economics, 1(77), 483-527.
  • Caton, GL, Goh, J and Kohers, N 2003, ‘Dividend omissions and intra-industry information transfers’, The Journal of Financial Research, 26(1), 51-64.
  • Chen, SS, Ho, LC and Shih, YC 2007, ‘Intra-industry effects of corporate capital investment announcements’, Financial Management, 36(2), 125-145.
  • Chiang, K 2010, ‘On the comovement of REIT prices’, Journal of Real Estate Research, 32, 187-200.
  • Denis, D, Denis, D and Sarin, A 1994, ‘The information content of dividend changes: cash flow signalling, overinvestment, and dividend clienteles’, Journal of Financial and Quantitative Analysis, 29, 567-587.
  • Erwin, GR and Miller, JM 1998, ‘The intra-industry effects of open market share repurchases: contagion or competitive’, Journal of Financial Research, 21(4), 389-406.
  • Firth, M 1996, ‘Dividend changes, abnormal returns, and intra-industry firm valuation’, Journal of Financial and Quantitative Analysis, 31(2), 189-211.
  • Frankfurter, GM and Wood, BG 2002, ‘Dividend policy theory and their empirical tests’, International Review of Financial Analysis, 11,111-138.
  • Gujarati, DN 2003, Basic Econometrics, Fourth Edition, McGraw-Hill, Singapore.
  • Hardin III, W and Hill, MD 2008, ‘REIT dividend determinants: excess dividends and capital markets’, Real Estate Economics, 36, 349-369.
  • Hayunga, DK and Stephens, CP 2009, ‘Dividend behaviour of US equity REITs’, Journal of Property Research, 26:2, 105-123.
  • Hertzel, MG 1991, ‘The effects of stock repurchases on rival firms’, Journal of Finance, 46: 707-716.
  • Hong, H and Stein, JC 2003, ‘Differences of opinion, short-sales constraints, and market crashes’, Review of Financial Studies, 16, 487-525.
  • Howe, JS and Jain, R 2004, ‘The REIT Modernization Act of 1999’, Journal of Real Estate Finance and Economics, Vol. 28 No. 4, pp. 369-388.
  • Howe, JS and Shen, YP 1998, ‘Information associated with dividend initiations: firm-specific or industry-wide’, Financial Management, 27(3), 17-26.
  • Impson, M 2000, ‘Contagion effects of dividend reduction or omission announcements in the electric utility industry’, Financial Review, 41, 121-136.
  • Jansen, DW and Tsai, CL 2010, ‘Monetary policy and stock returns: financing constraints and asymmetries in bull and bear markets’, Journal of Empirical Finance, 17(5), 981-990.
  • Jensen, GR, Lundstrum, LL and Miller, RE 2010, ‘What do dividend reductions signal’, Journal of Corporate Finance, forthcoming.
  • John, K and Williams, J 1985, ‘Dividends, dilution, and taxes: a signalling equilibrium’, Journal of Finance, 40, 1053-1070.
  • Kohers, N 1999, ‘The industry wide implications of dividend omission and initiation announcements and the determinants of information transfer’, The Financial Review, 34, 137-158.
  • Lang, L and Stulz, R 1992, ‘Contagion and competitive intra-industry effects of bankruptcy announcements’, Journal of Financial Economics, 32, 45-60.
  • Laux P, Starks, LT and Yoon, PS 1998, ‘The relative importance of competition and contagion in intra-industry information transfers: an investigation of dividend announcements’, Financial Management, 27(3), 5-16.
  • Lee, ML, Chiang, KCH and Lin, CW 2011, REIT stock dividends: the policy and intra-industry wealth effects, 17 Annual Pacific Rim Real Estate Society Conference, Gold Coast, Australia.
  • Lee, MT, Chiu, BH, Lee, ML, Chiang, KCH and Slawson, Jr, VC 2010, ‘REIT excess dividend and information asymmetry: evidence with taxable income’, Journal of Property Investment and Finance, 28(3), 221-236.
  • Lee, ML, Kuo, SH, Lee, MT and Lin, CW 2011, ‘Market signals associated with Taiwan REIT IPOs: reactions of non-REIT real estate stocks’, Journal of Real Estate Literature, 19(1): 93-110.
  • Li, W and Lie, E 2006, ‘Dividend changes and catering incentives’, Journal of Financial Economics, 80, 293-308.
  • Li, Q, Sun, H and Ong, SE 2006, ‘REIT splits and dividend changes: tests of signalling and information substitutability’, Journal of Real Estate Finance and Economics, 33(2), 127-150.
  • Lie, E 2004, ‘Operating performance following dividend decreases and omissions’, Journal of Corporate Finance, 25, 27-53.
  • Lintner, J 1956, ‘Optimal dividends and corporate growth under uncertainty’, Quarterly Journal of Economics, 78, 4995.
  • Liu, Y, Szewczyk, SH and Zantout, Z 2008, ‘Underreaction to dividend reductions and omissions’, Journal of Finance, 63, 987-1020.
  • Marsh, TA and Merton, RC 1987, ‘Dividend behavior for the aggregate stock market’, Journal of Business, 60, 1-40.
  • Miller, MH and Rock, K 1985, ‘Dividend policy under asymmetric information’, The Journal of Finance, 40(4), 1031-1051.
  • Muhlhofer, T and Ukhov, AD 2010, Do stock prices move too much to be justified by changes in dividends? Evidence from real estate investment trusts, Working Paper, Indiana University.
  • Ooi, JTL 2001, ‘Dividend payout characteristics of U.K. property companies’, Journal of Real Estate Portfolio Management, 7(2), 133-142.
  • Schultz, P 2003, ‘Pseudo market timing and the long-run underperformance of IPOs’, Journal of Finance, 58(2), 483-517.
  • Simpson, MW, Emery, JT and Moreno, JF 2009, ‘Overreaction and underreaction to REIT dividend announcements and the role of monetary policy’, Journal of Real Estate Portfolio Management, 15(3), 289-298.
  • Wang, K, Erickson, J and Gau, GW 1993, ‘Dividend policies and dividend announcement effects for real estate investment trusts’, Journal of the American Real Estate and Urban Economics Association, 21(2), 185-201.
  • White, H 1980, ‘A heteroskedasticity-consistent covariance matrix estimator and a direct test of heteroskedasticity’, Econometrica, 48, 817-838.
  • Yuan, K 2005, ‘Asymmetric price movements and borrowing constraints: a rational expectations equilibrium model of crises, contagion, and confusion’, Journal of Finance, 60, 379-411.