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The underpricing of US REIT IPOs: 1996--2010

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  • Ranajit Kumar Bairagi
  • William Dimovski

Abstract

This study examines the underpricing cost of 123 US REIT IPOs over the period 1996 until June 2010, including the period of the global financial crisis. The study uses OLS multivariate regression to determine some potential factors behind underpricing. The underpricing cost of raising REIT external equity averaged 3.18% using an equal weighting for each of the 123 REIT IPOs. The study finds offer size is positively related to underpricing. A value weighted approach finds that underpricing averages 4.67% and suggests larger offer size is an important determinant for leaving more money on the table. Higher reputation underwriters, the industry differentiated auditor and post offer ownership structure negatively influence underpricing. The study documents declining underpricing over time with the period of 2007--2010 experiencing negative underpricing (overpricing) during the global financial crisis (GFC). Offers during the hot periods of 1997 and 2004 and the office/industrial property type were more highly underpriced. The 10-year treasury interest rate is identified as another significant positive determinant of underpricing.

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  • Ranajit Kumar Bairagi & William Dimovski, 2010. "The underpricing of US REIT IPOs: 1996--2010," Journal of Property Research, Taylor & Francis Journals, vol. 28(3), pages 233-248, December.
    • Handle: RePEc:taf:jpropr:v:28:y:2010:i:3:p:233-248
    DOI: 10.1080/09599916.2011.577905
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    1. Ranajit Kumar Bairagi & William Dimovski, 2012. "The direct costs of raising external equity capital for US REIT IPOs," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 30(6), pages 538-562, September.
    2. Chen Zheng & David Ling & Gianluca Marcato, 2018. "Do Property Locations Matter to IPO Valuation? Evidence from U.S. REITs," ERES eres2018_299, European Real Estate Society (ERES).
    3. Su Chan & Jiajin Chen & Ko Wang, 2013. "Are REIT IPOs Unique? The Global Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 47(4), pages 719-759, November.
    4. Tiziana La Rocca, 2021. "Do prestigious underwriters shape IPO pricing? A meta-analytic review," Review of Managerial Science, Springer, vol. 15(3), pages 573-609, April.

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