Differences in underpricing of A-REIT IPOs and Australian property company IPOs
| Date | 07 March 2016 |
| Pages | 107-115 |
| Published date | 07 March 2016 |
| DOI | https://doi.org/10.1108/JPIF-06-2015-0041 |
| Author | Bill Dimovski |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
Differences in underpricing of
A-REIT IPOs and Australian
property company IPOs
Bill Dimovski
Department of Finance, Deakin University, Geelong, Australia
Abstract
Purpose –A variety of papers have analyzed the underpricing of REIT IPOs or property company
IPOs. The purpose of this paper is to compare the two sectors and examines differences in the
underpricing of the two types of IPOs.
Design/methodology/approach –An OLS regression is used to identify factors influencing the
underpricing of A-REIT and property company IPOs from 1994 until 2014.
Findings –This study finds that A-REIT IPOs have a significantly lower underpricing on average
than Australian property company IPOs. The time taken to list appears to influence the underpricing
of both A-REIT IPOs and property company IPOs, in that issues that are filled more quickly have
higher underpricing but with the magnitude of the impact being less for A-REITs. The sentiment
toward the stock market also appears to impact on the underpricing of A-REIT and property company
IPOs again with the magnitude of the impact being less for A-REITs.
Practical implications –The paper provides information to new A-REIT and property company
issuers, underwriters and investors.
Originality/value –The study is the first to compare and examine the differences in the underpricing
of both REITs and property companies in the one country over the same time period.
Keywords Australia, IPOs, A-REITs, Underpricing, Property companies
Paper type Research paper
1. Introduction
The underpricing of initial public offerings has proven to be a puzzle for companies
seeking to list, underwriters, academics and investors over many years. Underpricing
is the term used for the first public day trading price of a newly listed stock exceeding
the offer or issue price of that stock. As such, it reflects a theoretical first day return
for subscribing investors and capital foregone by the issuing company. Loughran
et al. (1994) identified that underpricing was a global phenomenon. These international
underpricing returns are updated on Jay Ritter’s website, bear.warrington.ufl.edu/
ritter/ and average first day returns still remain interestingly high, ranging from
3.3 percent in Russia to 16 percent in the UK, 16.9 percent in the USA, 21.8 percent
in Australia, 25.8 percent in Singapore, 41.7 percent in Japan to 239.8 percent in
Saudi Arabia.
REIT IPO underpricing returns appear however to be much lower, with those reported
in the USA at 3.2 percent in Bairagi and Dimovski (2011) (although in early work Wang
et al. (1992) reported an average overpricing of US REITs of 2.8 percent); Australian REIT
(A-REIT) IPOs in Dimovski (2010) were reported at 3.3 percent; Japanese REIT IPOs in
Kutsuna et al. (2008) were 0.5 percent, while in Singapore, Ooi reports S-REITs at
11.8 percent underpricing. Interestingly, property company IPO underpricing returns
have been in this similar relatively low range, with Brounen and Eichholtz (2002) reporting
0.8 percent in France, 1.7 percent in Sweden and 4.1 percent in the UK; while Chan et al.
(2001) report Hong Kong property company IPOs underpricing at 16.2 percent.
Journal of Property Investment &
Finance
Vol. 34 No. 2, 2016
pp. 107-115
©Emerald Group Publis hing Limited
1463-578X
DOI 10.1108/JPIF-06-2015-0041
Received 2 June 2015
Accepted 29 August 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
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Differences in
underpricing
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