Stock market reaction to sale and leaseback announcements in the UK

Abstract

This paper examines the stock market reaction to announcements of sale and leaseback transactions concerning corporate real estate in the UK. The research has been conducted using standard event study methodology. A previous study in the US demonstrated that the share price of the seller-lessee firm tends to increase on the announcement of a sale and leaseback transaction. The authors concluded that this positive market reaction was due to an overall reduction in the present value of expected taxes. In contrast, empirical research for the UK presented in this paper shows that the share price of the seller-lessee tends to fall on the announcement of a sale and leaseback transaction. We think that this generally negative reaction may be due to the stock market treating many UK sale and leaseback transactions as a signal that the seller-lessee's net operating cash flow situation is worse than had previously been thought.