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Are secondary equity offerings of Black Economic Empowerment (BEE) REITs less underpriced than non-BEE REITs?

Author

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  • Oluwaseun Damilola Ajayi
  • Omokolade Akinsomi

Abstract

Purpose - The purpose of this paper is to contribute to the literature on secondary equity offerings (SEOs) by examining the impact of the Black Economic Empowerment (BEE) policy on secondary equity offering (SEO) pricing dynamics of South African Real Estate Investment Trusts (REITs). Design/methodology/approach - With a sample of 152 SEOs of South African REITs from 2010 to 2020, ordinary least squares (OLS) models, fixed effect models, parametric and non-parametric tests were applied to test for the impact of BEE on the underpricing of SEOs. Findings - Significant underpricing is discovered in highly compliant (BEE) REITs; in other words, SEOs pricing of BEE compliant REITs are more underpriced compared to non-compliant BEE REITs. With this, BEE compliant REITs and more so, highly compliant BEE REITs in particular leave more money on the table. Practical implications - The government is therefore aware of the impact policy interventions play when REITs raise financing through SEOS. With these, highly compliant BEE REITs will need to be more strategic when making BEE compliance decisions as this is shown in our study to impact the underpricing of SEOs. Originality/value - This is the first study to investigate SEO underpricing for the BEE policy using the South African REITs context.

Suggested Citation

  • Oluwaseun Damilola Ajayi & Omokolade Akinsomi, 2022. "Are secondary equity offerings of Black Economic Empowerment (BEE) REITs less underpriced than non-BEE REITs?," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 41(1), pages 50-75, June.
    • Handle: RePEc:eme:jpifpp:jpif-01-2022-0006
    DOI: 10.1108/JPIF-01-2022-0006
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