Industrial timberland transactions in the United States: Firm financial performance, timber supply, and welfare implications

Abstract

In the last two decades, many firms in the U.S. forest products industry have either divested their timberlands or converted their corporate structures from C corporations to real estate investment trusts (REITs). This study hypothesizes that this large-scale timberland ownership change affects the financial performance of firms involved in divestitures and on timber supply and, as a result, the economic surplus of producers and consumers in the U.S. timber markets. These issues have not been adequately addressed in existing literature. Event analysis and equilibrium displacement models were employed to address firm financial performance in the capital markets and welfare implications in U.S. timber markets, respectively. The capital markets responded to divestiture events by significantly improving buying firms' and REITs' market value. Annual average timberland ownership changes resulted in a net reduction of timber supply which, in turn, caused total social surplus to decrease by $43 million on annual rate of timberland ownership change basis. Compared to over $33 billion U.S. timber markets, this surplus reduction was small. Thus, this study helps justify timberland ownership change decisions and explains the nature and extent of surplus shifts among producers and consumers when timberlands change hands.