IPO market timing: evidence from the operating performance of REITs
| DOI | https://doi.org/10.1108/14635781211194809 |
| Date | 03 February 2012 |
| Pages | 58-68 |
| Published date | 03 February 2012 |
| Author | Vivek Sah,Philip Seagraves |
| Subject Matter | Property management & built environment |
IPO market timing: evidence
from the operating performance
of REITs
Vivek Sah
Burnham-Moores Center for Real Estate, University of San Diego,
San Diego, California, USA, and
Philip Seagraves
Georgia State University, Atlanta, Georgia, USA
Abstract
Purpose – The purpose of this paper is to consider the operating performance of real estate
investment trust initial public offerings (REIT IPOs) as a measure to find additional evidence of
market timing in this sector.
Design/methodology/approach – A sam ple of REIT IPOs is analyzed to determine the
relationship between IPO clustering and several measures of REIT operating performance.
Findings – The results suggest that timing the market by marginal firms in the REIT sector would
be difficult, due to the transparent nature of REITs, leading to lower level of informational asymmetry
between REIT managers and investors. Consistent with results found for non-REIT firms in industry
clusters, no evidence was found of a significant difference between the operating performance of
REITs which are part of an IPO cluster and those that went public outside of the identified cluster
periods.
Practical implications – This study shows that REIT market is efficient and would not allow REIT
managers to time the market.
Originality/value – Using stringent measures of identifying REIT IPO clusters and operating
performance as a measure to gauge market timing, this study differs from previous studies and
provides additional and robust evidence of transparent nature of REITs that leads to reduced
information asymmetry between managers and investors. This result supports the theory that REITs
are more transparent and thus less likely to be over-invested during IPO cluster periods.
Keywords Realestate, Investments,Raising capital, Realestate investmenttrust, Initial public offerings,
REIT IPOs, Clusters,Operating performance, Markettiming, Marginal firms
Paper type Research paper
I. Introduction
Institutional and small investors hold a significant proportion of their portfolios in real
estate securities. Because of the illiquid nature and large capital requirements of direct
real estate investment, real estate investment trusts (REITs) are an important vehicle
for real estate investment among institutional and small investors. Investors either buy
REIT shares in the secondary market or subscribe to REIT initial public offerings
(IPOs), which provide investors an opportunity to purchase shares of real estate
companies that are new to the public markets and potentially poised for growth via
new capital infusion. The last 20 years have seen tremendous growth in the number of
REITs that have gone public to tap the capital markets. Table I gives a breakdown of
the REIT IPOs during the period from 1990 to 2009. As seen from the table, in 1994
alone, the REIT industry undertook 29 IPOs raising nearly $8 billion. This activity
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
JPIF
30,1
58
Journal of Property Investment
& Finance
Vol. 30 No. 1, 2012
pp. 58-68
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635781211194809
To continue reading
Request your trial