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Discounting and Underpricing of REIT Seasoned Equity Offers

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  • Kimberly R. Goodwin

    () (The University of Southern Mississippi)

Abstract

For seasoned equity offerings, the discounting of the offer price from the closing price on the previous day is influenced by the level of asymmetric information surrounding the firm and the offering, as well as compensation to investors willing to purchase new shares. Discounting is important for the offering firm because it represents money left on the table, and this is the first paper to examine the degree of discounting and its determinants for real estate investment trusts (REITs). Studying the discounting of REIT seasoned equity offers from 1994 to 2006, this paper provides support for both the placement cost and value uncertainty hypotheses of discounting. When new REIT shares are more difficult to place with investors and there is less consensus about the valuation of REIT shares, investors will require greater discounting of the offer price.

Suggested Citation

  • Kimberly R. Goodwin, 2013. "Discounting and Underpricing of REIT Seasoned Equity Offers," Journal of Real Estate Research, American Real Estate Society, vol. 35(2), pages 153-172.
  • Handle: RePEc:jre:issued:v:35:n:2:2013:p:153-172
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    References listed on IDEAS

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    Cited by:

    1. Elizabeth Devos & Erik Devos & Seow Eng Ong & Andrew Spieler, 2017. "Are REIT Investors Overly Optimistic after Equity Offerings?: Evidence from Analyst Forecast Errors," ERES eres2017_129, European Real Estate Society (ERES).
    2. Elizabeth Devos & Erik Devos & Seow Eng Ong & Andrew C. Spieler, 2016. "Who Follows REITs?," Journal of Real Estate Research, American Real Estate Society, vol. 38(1), pages 129-164.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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