![Sample our Built Environment journals, sign in here to start your access, Latest two full volumes FREE to you for 14 days]({"type":"image" , "src" : "/sda/5926/TOC-Subject-Sample-2021-Built-Environment.jpg"})
ABSTRACT
Conveyance of information associated with REIT FFO announcements is investigated by decomposing stock returns into three components: firm-specific, industry-level and market-wide. The relative importance of firm-specific and industry information is evaluated around and following FFO announcements. The initial market reaction to REIT FFO announcements is primarily driven by the firm-specific return component. The underreaction to firm-specific information appears in drift after the announcement, especially for negative FFO surprises. FFO surprises explain the firm-specific return component, but not the industry-level return component which further suggests that FFO announcements only convey firm-specific information.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. We focus on FFO announcements because FFO contains more useful information than earnings about REITs’ cash flow (Ben-Shahar, Sulganik, & Tsang, Citation2011; and Gyamfi-Yeboah et al. Citation2012). Nevertheless, we also examine earnings announcements. Results are qualitatively the same.
2. However, Elgers, Porter, and Xu (Citation2008) find that Ayers and Freeman’s result is sensitive to the way unexpected earnings are measured and find that neither the firm-specific component of earnings nor the industry-level component can explain post-earnings announcement returns when controlling for the non-linear relation between return and earnings.
3. Prior literature has examined stock price reactions around and after REIT earnings and FFO announcements. Gyamfi-Yeboah et al. (Citation2012) find significant initial market reactions to FFO surprises, especially for negative surprises. Price et al. (Citation2012) find significant abnormal stock returns around and after earnings announcements. Gyamfi-Yeboah et al. (Citation2012) also find significant initial market reactions in REITs’ earnings announcements. However, unlike Price et al., Gyamfi-Yeboah et al. do not find evidence of a post-earnings announcement drift.
4. In contrast, Dische (Citation2002) find a negative relation between information uncertainty, proxied by dispersion of analysts’ forecast, and profitability of earnings momentum strategies. Dische formulates earnings momentum strategies based on earnings revisions rather than earnings surprises. Therefore, it is not clear that information uncertainty is negatively associated with post-earnings announcement drift.
5. Devos, Ong, and Spieler (Citation2007) find an increase in analyst coverage on REITs and also more accurate analyst forecasts in the post-2000 era. Gyamfi-Yeboah et al. (Citation2012) also focus their regression analysis on the post-2000 period.
6. The equity REIT industry portfolio is a value-weighted portfolio. The weight for each security is calculated daily. Consequently, the composition of the equity REIT industry portfolio is different for different announcing REIT j.
7. We also calculate abnormal returns using the CRSP value-weighted market index as a benchmark. The results are qualitatively the same.
8. Statistics for testing difference in means in this part of the analysis are not tabulated.
9. Gyamfi-Yeboah et al. (Citation2012) and Price et al. (Citation2012) also include similar firm characteristics in their regression analysis. However, unlike Gyamfi-Yeboah et al. and Price et al., we focus on firm-specific and industry components of stock returns rather than abnormal stock returns.
10. We also conduct a regression analysis using abnormal stock return as the dependent variable. Similar to earnings announcement literature, we find that FFO surprise is positively related to abnormal returns around and after the announcements.
11. We also use dispersion of analysts’ forecast as a measure of information uncertainty. Results, albeit weaker, are qualitatively the same.
Additional information
Notes on contributors
William G. Hardin
William G. Hardin III,Ph.D., is Associate Dean for the Chapman Graduate School of Business at Florida International University and Founding Director of the Tibor and Sheila Hollo School of Real Estate. The program is one of the largest in the United States and is recognized for innovation and research excellence. Its faculty were ranked in a recent article in Journal of Real Estate Literature (JREL) as #1 in the United States and #2 globally in academic real estate research. Dr. Hardin’s research has been published in elite journals such as Real Estate Economics, Journal of Real Estate Finance and Economic, Journal of Real Estate Research and many others.
Gow-Cheng Huang
Gow-Cheng Huang, Ph.D., is a Professor of Finance at Tuskegee University, Tuskegee, Alabama, USA. He teaches courses in corporate finance and investments. His research interests include corporate finance and investment finance
Kartono Liano
Kartono Liano, Ph.D., is a Professor of Finance at Mississippi State University in Starkville, Mississippi, USA. He teaches courses in investments and his research interests include investments, corporate finance, and real estate investment trusts.
Ming-Shiun Pan
Ming-Shiun Pan, Ph.D., is a Professor of Finance at Shippensburg State University in Shippensburg, Pennsylania, USA. He teaches courses in investments and his research interests include corporate finance, investments and real estate investment trusts