The Investor Reaction to REIT Dividend Announcements during the Financial Market Crises of 2008 and 2020

Abstract

This paper investigates the investor reaction to real estate investment trust (REIT) dividend announcements during the financial market crises of 2008 and 2020. I use event study methodology to find abnormal returns and cumulative average abnormal returns (CAARs) over an event window of -30 to +30 days. I split the event window into subperiods: day -30 to day -2; day -1 to day 1; day 2 to day 30. In general, REITs that suspend or cut dividends during these financial crises experienced positive CAARs during the post-announcement period. This supports the idea that investors respond positively, albeit briefly, to negative dividend changes in times of financial crisis. It is inferred that managers are making a minimal change in order to mitigate risk and ensure that the firms regain financial stability. I compare investors’ responses to dividend cuts versus suspensions as well as investors’ responses to changes in dividend for equity REITs versus mortgage REITs. Finally, I contrast the responses during each financial crisis.