REIT Dividend Policies and Dividend Announcement Effects During the 2008–2009 Liquidity Crisis

Abstract

Real estate investment trust (REIT) dividend policies and dividend announcement effects during the 2008-2009 liquidity crisis are examined. Multinomial logit results indicate that REITs with higher market leverage or lower marketto-book ratios are more likely to cut dividends, suspend dividends or pay elective stock dividends. These results imply that mitigating going-concern risk is an important motive for REITs adjusting dividend policies during the crisis and support dividend catering theory where investor demand for dividends impacts corporate dividend policies. Moreover, REITs that cut or suspend dividends experience positive cumulative abnormal returns during the post-announcement period after controlling for the potential influence from simultaneous funds from operation announcements. The positive market response over the post-announcement period supports the notion that dividend decisions convey information to investors and is also consistent with the broad catering theory of dividend policy.Research on dividend policy and market reactions to dividend announcements has been conducted in a variety of market environments over the past half century (see, e.g., Lintner 1956, Brav et al. 2005. Little research, however, has focused on these issues in an environment such as the 2008-2009 liquidity crisis. Moreover, although researchers have embraced a wide set of hypotheses and theories including signaling, information asymmetry, agency costs, tax clienteles, firm life cycle and dividend catering to explain dividend behavior, these explanations remain open to debate. 1 During the 2008-2009 crisis, dysfunctional capital markets created an exogenous shock to firms dependent on external capital flows. The broad stock market * National Association of Real Estate Investment Trusts (NAREIT), Washington, DC 20006 or bcase@nareit.com.

The impacts of the 2008 and 2011 crises on the Japan REIT market

“…Index and the TOPIX.Total Return (TOPIX TR), which include data on dividends. Case et al (2012aCase et al ( , 2012b and Milunovich and Truck (2013) used similar data to explain the REIT markets. Hence, we shall implement the robustness check by using the price index and the total return index (the dividend yield) shown in Figure 3 Peterson and Hsieh (1997), Karolyi and Sander (1998), Ling et al (2002) and Barkham and Geltner (1995) suggested, as shown in Figure 3(d), that S&P500 and US-NAREIT Price behaved similarly to each other, while Case-Shiller U.S. National Home Price behaved differently.…”

“…Studies by Case et al (2012aCase et al ( , 2012b and Chang and Chen (2014) showed that the impact of the 2008 crisis on the REIT's market was observed in US as well as other markets. We should then consider the shock of 2008 crisis on the J-REIT market together with the 2011 earthquake.…”

“…Namely, the housing price determines mainly the REIT price ( show similar results reported in Table 7 with no dummy variables. Another robustness check can be conducted by using the dividend yield for all variables in Equation (9) as in Case et al (2012aCase et al ( , 2012b and Milunovich and Truck (2013). The results are reported in Table 8.…”

“…In relation to the 2008 global financial crisis, Case et al (2012aCase et al ( , 2012b triggered by the 'subprime loan' shock in the housing markets changed the financing method. Indeed, beginning from the 1990s when the US-REIT was developed, there has been a lack of evidence on real estate shock on the REIT price, except in Kallberg et al (2008) whom studied the New York REITs in response to the catastrophic events of September 11, 2001, and revealed that on the day when markets reopened, the REITs with significant exposure to the New York area outperformed the broader REIT office index by 4.1 %, and it lasted till midNovember before the abnormal REIT returns disappeared.…”

Shareholder composition, share turnover, and returns in volatile markets: The case of international REITs

“…However, by the end of 2009 the average dividend yield had declined to 3.7 percent. In fact, common shareholders witnessed approximately 60 U.S. REITs cut or suspend dividends during 2008 and 2009 (Case et al, 2012). In addition, the share price volatility of public real estate companies has increased dramatically in recent years.…”