Adjustment of stock prices and volatility to changes in industrial timberland ownership

In the United States, the majority of publicly traded and vertically integrated forest firms with both manufacturing facilities and timberland holdings have either sold their timberlands to private investors, or converted their corporate structure into Real Estate Investment Trusts (REITs). In this study, timberland ownership changes between 1997 and 2010 were reviewed, and their impact on publicly traded forest products firms was assessed. Changes in industrial timberland ownership were organized into four groups: 24 large timberland sales by public forest firms; six jumbo timberland sales; seven announcements related to timber REIT conversions; and four land acquisitions by timber REITs. Event analysis and the generalized autoregressive conditional heteroscedasticity (GARCH) model were employed to evaluate event-induced abnormal returns and volatility. The review revealed that most vertically integrated forest firms in the United States had divested their timberlands between 1997 and 2010. Four timber REITs have been formed since 1998, and they own 15.5 million acres of timberlands at present. Timberland sales by forest firms and acquisitions by REITs generated negative abnormal returns, while conversions to REITs produced positive impacts. In most cases, these events also increased asset volatility. These findings help us understand the adjustment of stock returns and volatility due to past ownership changes, and may shed light on similar changes by privately held forest firms in the future.

► Most forest firms in the United States had divested their timberlands between 1997 and 2010.
► Four timber REITs currently own 15.5 million acres of timberlands.
► Timberland sales and acquisitions generated negative abnormal returns.
► The events generally increased asset volatility.