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The Pricing of Seasoned Equity Offerings: Evidence from REITs
Author(s) -
Ghosh Chinmoy,
Nag Raja,
Sirmans C. F.
Publication year - 2000
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00805
Subject(s) - real estate investment trust , equity (law) , closing (real estate) , initial public offering , business , underwriting , financial economics , reputation , economics , institutional investor , monetary economics , real estate , finance , corporate governance , political science , law , social science , sociology
Real estate investment trusts (REITs) have been a very active sector in the capital market over the last few years. This paper examines the pricing of seasoned equity offers by equity REITs during 1991–1996. Consistent with Parsons and Raviv's model, we find that SEOs by REITs are underpriced with respect to both the closing price on the day before and the closing price on the day of the offer. Underpricing depends on the institutional ownership of the firm's common stock. Issues by firms with higher institutional ownership are more underpriced for post‐1990 REITs. Further, consistent with the notion that theories of IPO pricing apply to SEOs as well, the underpricing of SEOs is a function of the issue size and of the underwriter's reputation.