The Announcement Effect of Real Estate Joint Ventures on Returns to Stockholders: An Empirical Investigation

This study compares the market reaction to the announcement of real estate joint venture on returns to stockholders of real estate and non-real estate firms. The main objectives were to examine the presence of a synergy effect associated with real estate joint ventures and to establish whether real estate firms earn higher excess returns due to their unique institutional characteristics (market locality, and/or market segmentation). Two hypotheses were examined: the synergy hypothesis and the informational asymmetries hypothesis.Real estate firms earn higher excess returns when they participate with non-real estate firms than when they participate with real estate firms. The opposite is true for non-real estate firms. Both real estate participants and non-real estate participants earn positive and statistically significant excess returns with no significant difference between the two groups. The result of this study is consistent with the synergy effect as a source of gain from the joint venture. It is also consistent with the notion that real estate firms have institutional characteristics in the form of better information about local real estate markets and/or superior management and technical expertise that allow real estate firms to achieve larger gains from joint ventures at the expense of non-real estate firms.