Underpricing and market timing in SEOs of European REITs and REOCs

Lorenz, Felix

doi:10.1108/jpif-07-2019-0099

Cited by 6 publications

(10 citation statements)

References 43 publications

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“…The informative prospectus which must accompany the offer of the company's securities represents one of the chains (channels) for which the company could reduce the uncertainty of the correct valuation of its own securities and extend information on its structure, its financial situation, its commercial position and its prospects for growth. The previous uncertainty of the value of the company, its age, its size agree with the model of Rock (1986) cited by Lorenz, F. (2019), the risk for uninformed investors who subscribe to the offer is reduced as the company offer must be made to attract uninformed investors as well.…”

Section: Information Asymmetry Hypothesismentioning

confidence: 61%

Underpricing Process of IPOs in Tunis Stock Exchange: An Agent-Based Modelling Approach

Missaoui¹,

Raissi²

2021

AFR

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The fundamental problematic treated in our study was an attempt to explain an anomaly in the issuance of new stocks in IPOs process. The objective of this research is to analyze the effect of certain variables on the level of undervaluation by presenting certain econometric models issued from Agent-based modelling approach. Certain variables can be predictive of the phenomenon of undervaluation such as: the Stock equity distributed to institutional investors, liquidity in the secondary market measured by the price range and the type of investor who can be insiders or outsiders, in addition to these variables we have introduced some control variables which in turn help explain the level of underpricing and which are the age of the company, its size and dimension, the volume of trade and the volatility. Empirically and based on a sample of 16 companies, we were able to respond to our problematic. In fact, according to the hypotheses tests, the prices of the newly introduced stocks on the stock exchange are mostly undervalued which were aligned with our study. Thereby, the methodology adopted based to Dynamic linear models (DLM) that allows offering a very generic framework to analyse time series data. The results of this research were, in part, consistent with work done in developed countries (especially in USA and Europe). Indeed, the undervaluation is in a positive relationship with certain explanatory variables such as the Institutional ownership (INST), Insiders ownership (INSID), Price range (FOUR), etc. On the other hand, we were able to identify significant negative relationships between the initial undervaluation and the basic variable Outsiders ownership (OUTSID), the size of companies listed on the Tunis Stock exchange (BVMT) and the volume of issued stocks.

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Section: Information Asymmetry Hypothesismentioning

confidence: 61%

Underpricing Process of IPOs in Tunis Stock Exchange: An Agent-Based Modelling Approach

Missaoui¹,

Raissi²

2021

AFR

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“…Harmful effects of the issuance of SEOs could also be caused by offer price discounts or SEO underpricing (Han et al 2021;Autore and Gehy 2013;Huang and Levich 2003;Liu and Chung 2013;Su and Fleisher 1999). A study of SEOs for real estate investment trusts concluded that SEO offer prices are discounted significantly (Goodwin 2013; see also Lorenz 2020;Ghosh et al 2000;Ong et al 2011). Intintoli and Kahle (2010) described SEO underpricing by exploring two links: First, higher insider ownership reduces float and, thereby, increases price pressure and SEO underpricing.…”

Section: Literature Reviewmentioning

confidence: 99%

Seasoned Equity Offerings and Differences in Share-Price Impact by Firm Categories

Abdullah

Zaby

2021

IJFS

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The seasoned equity offering (SEO) market plays a significant role in the economic development of a country by providing liquidity for ongoing commercialization and innovation. This study is a comprehensive analysis of 149 SEOs and their effect on share prices in Thailand between 2009 and 2019. SEOs are categorized based on their time categories (early, mid, and grown) and volume categories (small, medium, big, and super). Using the event study methodology (multi-factor model), we find that most SEOs under both categories have a negative cumulative abnormal return (CAR) in the window period. Ranking the types of SEOs reveals that grown SEOs have the highest proportion of negative CAR under the time categories. Under the volume categories, medium SEOs show the largest share. The results were validated by regression assumption tests provided by Gnu Regression, Econometrics and Time-series Library, and correspond to established theories. The paper also contains an extensive literature review of studies examining the link between SEOs and share-price development. Our findings have important implications for corporations, investors, and regulatory bodies and can thus help in increasing market confidence for sustainable corporate funding.

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“…Although both studies find significant underpricing for REIT issuances, initial-day returns are lower than that observed for a matching industrial sample. The lower underpricing of REITs has thereby been attributed to their unique nature and specific regulatory requirements, making them more transparent than general stocks and thus easier to value for potential investors (Buttimer et al, 2005;Hartzell et al, 2005;Dolvin and Pyles, 2009;Lorenz, 2020). However, despite being considered more transparent than their industrial counterparts, REITs suffer from information asymmetry.…”

Section: Underpricing Of Us Reit Iposmentioning

confidence: 99%

Can textual analysis solve the underpricing puzzle? A US REIT study

Paulus

Koelbl

Schaefers

2021

JPIF

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PurposeAlthough many theories aim to explain initial public offering (IPO) underpricing, initial-day returns of US Real Estate Investment Trust (REIT) IPOs remain a “puzzle”. The literature on REIT IPOs has focused on indirect quantitative proxies for information asymmetries between REITs and investors to determine IPO underpricing. This study, however, proposes textual analysis to exploit the qualitative information, revealed through one of the most important documents during the IPO process – Form S-11 – as a direct measure of information asymmetries.Design/methodology/approachThis study determines the level of uncertain language in the prospectus, as well as its similarity to recently filed registration statements, to assess whether textual features can solve the underpricing puzzle. It assumes that uncertain language makes it more difficult for potential investors to price the issue and thus increases underpricing. Furthermore, it is hypothesized that a higher similarity to previous filings indicates that the prospectus provides little useful information and thus does not resolve existing information asymmetries, leading to increased underpricing.FindingsContrary to expectations, this research does not find a statistically significant association between uncertain language in Form S-11 and initial-day returns. This result is interpreted as suggesting that uncertain language in the prospectus does not reflect the issuer's expectations about the company's future prospects, but rather is necessary because of forecasting difficulties and litigation risk. Analyzing disclosure similarity instead, this study finds a statistically and economically significant impact of qualitative information on initial-day returns. Thus, REIT managers may reduce underpricing by voluntarily providing more information to potential investors in Form S-11.Practical implicationsThe results demonstrate that textual analysis can in fact help to explain underpricing of US REIT IPOs, as qualitative information in Forms S-11 decreases information asymmetries between US REIT managers and investors, thus reducing underpricing. Consequently, REIT managers are incentivized to provide as much information as possible to reduce underpricing, while investors could use textual analysis to identify offerings that promise the highest returns.Originality/valueThis is the first study which applies textual analysis to corporate disclosures of US REITs in order to explain IPO underpricing.

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Underpricing and market timing in SEOs of European REITs and REOCs

Cited by 6 publications

References 43 publications

Underpricing Process of IPOs in Tunis Stock Exchange: An Agent-Based Modelling Approach

Underpricing Process of IPOs in Tunis Stock Exchange: An Agent-Based Modelling Approach

Seasoned Equity Offerings and Differences in Share-Price Impact by Firm Categories

Can textual analysis solve the underpricing puzzle? A US REIT study

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