Is There a Market for Partial Corporate Control? Evidence from REITs

In October of 2002, the Simon Property Group made a hostile takeover bid for Taubman Centers, a bid that the financial press widely reported as the first significant hostile takeover attempt in the U.S. REIT industry. As such, this event provides a natural experiment for estimating the value of the market for corporate control, one of the primary corporate governance mechanisms by which the market ensures that firm managers maximize shareholder value. Contrary to our expectations, we find no significant industry price reaction in response to this announcement, strong evidence that this event did not mark the introduction of a market for corporate control into the REIT industry. We argue that REIT anti-takeover provisions had doomed Simon's bid from the start and continue to preclude operation of a market for corporate control. However, we do find that Taubman's shares responded favorably to the announcement, rising by 12 percent on the announcement day. We attribute this to operation of the market for partial corporate control as described by Bethel, Leibeskind and Opler (1998)