The Valuation Effects of Geographic Diversification: Evidence from U.S. Banks

Purpose Merging two real estate investment trusts (REITs) consolidates two real estate portfolios. The purpose of this paper is to provide further evidence on the market’s valuation of property type and geographic diversification of REITs by looking at the diversification impact of mergers involving domestic REITs in the Modern REIT era (post 1992). Design/methodology/approach The authors classify equity REIT mergers according to whether they maintain portfolio focus or alter their focus with respect to the geography and property type distribution of the underlying real estate. Then, using a domestic REIT index, the authors examine abnormal returns around the merger announcement to ascertain how portfolio changes affect value. Findings Although the results show no abnormal returns to the combined REIT for the 126 mergers in the sample, mergers that maintain geographic focus and alter the property focus contribute positively to the abnormal returns. Acquiring REITs show negative abnormal returns for mergers that either diversify geography or maintain property focus. Target REITs earn positive abnormal returns no matter the diversification impact of the merger. Research limitations/implications The results suggest that changes to the composition of the REIT’s property portfolio have valuation implications. The results suggest that during the modern REIT Era, property diversification created positive wealth effects for the acquirer. Originality/value This research adds to the evidence on how REIT investors value changes in the diversification of the underlying properties, and implies that the investor perception of portfolio effects from mergers may vary over time as the REIT industry expands and consolidates.

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The Determinants of Merger Withdrawals’ Abnormal Returns in The Australian Market

Journal of Economics and Development ◽

10.33301/2015.17.03.05 ◽

2015 ◽

pp. 89-110 ◽

Cited By ~ 1

Author(s):

Thuy Nguyen Thu ◽

Giang Dao Thi Thu ◽

Hoang Truong Huy

Keyword(s):

Financial Crisis ◽

Event Study ◽

Abnormal Returns ◽

Market Response ◽

Crisis Period ◽

Valuation Effects ◽

Event Study Method ◽

Private And Public ◽

Method Of Payment ◽

The Impact

This paper examines the abnormal returns in merger withdrawals in Australia, especially distinguishing the market response between private and public targets. We also study the determinants of those abnormal returns, including the method of payment and the impact of financial crisis periods. Using the event study method, we document that in the Australian context, the announced withdrawal of mergers involving private targets creates significantly negative valuation effects in comparison with the valuation effects in withdrawal of mergers involving public targets. We also find that a financial crisis period strongly affects abnormal returns of merger withdrawals. However, the method of payment does not have any impact on the abnormal returns.

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Valuation Effects with Transitory and Trend Output Shocks

SSRN Electronic Journal ◽

10.2139/ssrn.1294066 ◽

2008 ◽

Cited By ~ 1

Author(s):

Ha Minh Nguyen

Keyword(s):

Valuation Effects

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Private Benefits in a Contingent Claim Framework: Valuation Effects and Other Implications

SSRN Electronic Journal ◽

10.2139/ssrn.1833421 ◽

2011 ◽

Author(s):

Patrick Navatte ◽

Franck Moraux

Keyword(s):

Contingent Claim ◽

Private Benefits ◽

Valuation Effects

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The Relative and Incremental Valuation Effects of Embedded Value Disclosure by Life Insurers: Evidence from Cross-Listed Firms in the U.S.

Accounting Horizons ◽

10.2308/acch-51015 ◽

2014 ◽

Vol 29 (2) ◽

pp. 327-339 ◽

Cited By ~ 1

Author(s):

Samir M. El-Gazzar ◽

Rudolph A. Jacob ◽

Scott P. McGregor

Keyword(s):

Empirical Studies ◽

Explanatory Power ◽

Accounting Standards ◽

Cash Flows ◽

Market Prices ◽

Joint Project ◽

Listed Firms ◽

Valuation Effects ◽

Life Insurers ◽

Embedded Value

SYNOPSIS European life insurers began disclosing embedded value information (EV) over a decade ago due to concerns with traditional local accounting standards. EV is an estimate of the present value of future net cash flows from in-force life insurance business. However, U.S.-based life insurers have yet to adopt this disclosure, although several surveys and empirical studies suggest that EV disclosure provides valuable information in assessing life insurers' performance. This paper examines the incremental valuation effects of EV disclosure in the presence of U.S. GAAP. We utilize a sample of cross-listed life insurers as surrogates to assess the valuation effects of EV disclosures for U.S. life insurers. Our empirical results show a higher association between EV and stock market prices than those of traditional accounting metrics such as earnings or book value. The results also show that EV has incremental explanatory power beyond those of traditional U.S. GAAP accounting measures. Our findings provide vital input to FASB and IASB as they currently engage in a joint project to develop uniform globally acceptable, comparable accounting standards for life insurers.

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Business cycles in emerging markets: The role of liability dollarization and valuation effects

International Review of Economics & Finance ◽

10.1016/j.iref.2021.04.010 ◽

2021 ◽

Author(s):

Stefan Notz ◽

Peter Rosenkran

Keyword(s):

Business Cycles ◽

Emerging Markets ◽

Valuation Effects ◽

Liability Dollarization

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Does the target market affect bank performance? Evidence from the geographic diversification of city commercial banks in China

Frontiers of Business Research in China ◽

10.1186/s11782-021-00104-x ◽

2021 ◽

Vol 15 (1) ◽

Author(s):

Xiaonan Li ◽

Chang Song

Keyword(s):

Commercial Banks ◽

Banking Sector ◽

Capital Adequacy ◽

Bank Performance ◽

Chinese Government ◽

Target Market ◽

Geographic Diversification ◽

Cross Sectional ◽

The Impact ◽

Geographical Diversification

AbstractAfter the opening up of the banking sector to domestic and foreign capitals which is approved by the Chinese government, the China Banking Regulatory Commission (CBRC) has permitted city commercial banks to diversify geographically. Since this deregulation in 2006, city commercial banks began to geographically diversify to occupy the market and acquire more financial resources. To examine the causal relationship between geographical diversification and bank performance, we construct an exogenous geographical diversification instrument using the gravity-deregulation model and a policy shock. We find that bank geographical diversification negatively affects bank performance. Moreover, we conduct some mechanism tests in the Chinese context. We find that the target market with several large- and medium-sized banks and a high level of local protectionism in the target market decreases the performance of city commercial banks. Finally, cross-sectional analyses show that the impact of geographical diversification on banks’ performance is more notable among city commercial banks that are younger, and have a lower capital adequacy ratio and a higher non-performing loan ratio.

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