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Discounting and Underpricing of REIT Seasoned Equity Offers

Author

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  • Kimberly R. Goodwin

    (The University of Southern Mississippi)

Abstract

For seasoned equity offerings, the discounting of the offer price from the closing price on the previous day is influenced by the level of asymmetric information surrounding the firm and the offering, as well as compensation to investors willing to purchase new shares. Discounting is important for the offering firm because it represents money left on the table, and this is the first paper to examine the degree of discounting and its determinants for real estate investment trusts (REITs). Studying the discounting of REIT seasoned equity offers from 1994 to 2006, this paper provides support for both the placement cost and value uncertainty hypotheses of discounting. When new REIT shares are more difficult to place with investors and there is less consensus about the valuation of REIT shares, investors will require greater discounting of the offer price.

Suggested Citation

  • Kimberly R. Goodwin, 2013. "Discounting and Underpricing of REIT Seasoned Equity Offers," Journal of Real Estate Research, American Real Estate Society, vol. 35(2), pages 153-172.
    • Handle: RePEc:jre:issued:v:35:n:2:2013:p:153-172
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    Citations

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    Cited by:

    1. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    2. Elizabeth Devos & Erik Devos & Seow Eng Ong & Andrew C. Spieler, 2019. "Are REIT Investors Overly Optimistic after Equity Offerings?: Evidence from Analyst Forecast Errors," The Journal of Real Estate Finance and Economics, Springer, vol. 59(2), pages 148-165, August.
    3. Saeed Md. Abdullah & Simon Zaby, 2021. "Seasoned Equity Offerings and Differences in Share-Price Impact by Firm Categories," IJFS, MDPI, vol. 9(3), pages 1-10, July.
    4. Elizabeth Devos & Erik Devos & Seow Eng Ong & Andrew Spieler, 2017. "Are REIT Investors Overly Optimistic after Equity Offerings?: Evidence from Analyst Forecast Errors," ERES eres2017_129, European Real Estate Society (ERES).
    5. Ebenezer Asem & Vishaal Baulkaran & Pawan Jain & Mark Sunderman, 2022. "Are institutional investors informed? The case of dividend changes for REITS and Industrial Firms," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1685-1707, May.
    6. Xiaoying Deng & Seow Eng Ong, 2018. "Real Earnings Management, Liquidity Risk and REITs SEO Dynamics," The Journal of Real Estate Finance and Economics, Springer, vol. 56(3), pages 410-442, April.
    7. Elizabeth Devos & Erik Devos & Seow Eng Ong & Andrew C. Spieler, 2016. "Who Follows REITs?," Journal of Real Estate Research, American Real Estate Society, vol. 38(1), pages 129-164.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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