Acquisitions by Real Estate Investment Trusts as a strategy for minimization of investor tax liability |
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Authors: | Jingyu Li Fayez A. Elayan Thomas O. Meyer |
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Affiliation: | (1) Department of Accounting, Massey University, Auckland, NZ;(2) Department of Commerce, Massey University, Auckland, NZ |
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Abstract: | A key requirement for Real Estate Investment Trusts (REITs) to maintain their corporate tax-exempt status is that 95 percent of income must be distributed as dividents. Receipt of this income imposes a personal tax burden on shareholders. A central tenet of this research is that REIT management is motivated to reduce investors’ personal taxes. This may involve reduction of before-tax income through acquisitions. Market reaction to REIT merger announcements is found to be positive and significant. The evidence developed is more consistent with abnormal returns being related to a tax advantage from acquisitions rather than gaining economies of scale. |
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