The Value in Targeting Institutional Investors: Evidence from the Five‐or‐Fewer Rule Change

Abstract

This article examines a recent relaxation in the ownership qualifications for real estate investment trusts that is popularly referred to as the five‐or‐fewer rule change. The motivation for this rule change leads to an analogy between the ownership change process and an industry‐wide investor targeting strategy. The findings reveal a significant wealth effect based on the targeting strategy; however, there is no evidence to suggest this heterogeneous effect was intended. In addition, the targeted investors' ex post trading behavior is linked directly to the targeting strategy. These findings support the value‐based strategy of targeting institutional investors where, in this case, value creation is associated with the increased concentration of a dispersed base of sophisticated investors.