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Previous research finds evidence that tax factors motivate the participants in leasing transactions. Tax-arbitrage arguments predict that leasing participants gain when the lessor's tax rate exceeds that of the lessee. This research employs a sample of effectively tax-exempt Real Estate Investment Trust (REIT) lessors to explore alternative leasing motives. Changes in REIT qualification rules are examined to develop an Agency-Cost and competing Income-Retention Hypothesis for lessors. The rules and changes suggest that REIT management has the incentive, motive, and opportunity to make real estate investments quickly. The evidence developed is consistent with agency costs arising from the possibility that they may overpay for properties. [ABSTRACT FROM AUTHOR]

The article presents information related to an empirical investigation of loan commitments obtained by non-taxable firms. Market reaction to the announcement of obtaining loan commitments (LCs) is examined for a unique sample of tax-exempt real estate investment trusts (REITs). Debt-interest tax incentives may be ruled out on a theoretical basis and empirically due to a significant positive market reaction. Thus, evidence is developed to differentiate between two signaling-effect explanations. The analysis supports the hypothesis that management procures LCs to undertake new real estate investments. This action is interpreted by the market as a signal of management's superior information regarding the REIT's true equity value. Market response to announcements of bank credit agreements has been examined in previous studies. These studies attempt to determine if banks obtain special information as a result of competitive advantages they possess relative to other lenders or due to the banks' continuing relationship with these borrowers.

Discusses the acquisitions by real estate investment trusts as a strategy for minimization of investor tax liability. Real estate investment trusts characteristics and qualifications; Tax benefits from merger and acquisition; Benefits from net operating loss carry-forwards.