Home • PRRES Inc. Journal • Read the Journal

The Underpricing of A-REIT IPOs in Australia During 2002 to 2008

Author/s: William Dimovski

Date Published: 1/01/2010

Published in: Volume 16 - 2010 Issue 1 (pages 39 - 51)

Abstract

This study analyses 45 Australian Real Estate Investment Trust (A-REIT) initial public offerings (IPOs) in Australia from January 2002 to June 2008, since the introduction of the single responsible entity to oversee the activities of listed property trusts (LPTs) rather than the trustee and manager roles. The study finds that this sample of A-REIT IPOs had a significant 3.37% underpricing and that the direct costs of capital raising help explain this indirect cost of underpricing. There is some evidence to suggest that A-REIT IPOs that seek to raise more equity capital have less underpricing, while those that are subscribed to more quickly have higher underpricing. The findings offer insights for issuers who seek to maximize the value of the A-REIT at the time of the IPO, underwriters who guarantee the success of the capital raising and for investors who are looking to invest in Australian A-REIT IPOs.

Download Full Article

Download the Full Article PDF

14445921.2010.11104294.pdf 14445921.2010.11104294.pdf (126kB)

Keywords

Ipos - Underpricing - a-Reits

References

  • Allen, F., and Faulhaber, G.R. (1989) Signalling by Underpricing in the IPO Market, Journal of Financial Economics, 23, 303–324.
  • Baron, D.P. (1982) A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues, Journal of Finance, 37(4), 955–976.
  • Beatty, R. P. (1989) Auditor Reputation and the Pricing of Initial Public Offerings, The Accounting Review, 64. 693–709.
  • Beatty, R.P. and Ritter, J.R. (1986) Investment Banking, Reputation, and the Under pricing of Initial Public Offerings, Journal of Financial Economics, 15(1–2), 213–232.
  • Benveniste, L. M., and. Spindt, P.A. (1989) How Investment Bankers Determine the Offer Price and Allocation of New Issues, Journal of Financial Economics, 24, 343–362.
  • Carter, R. and Manaster, S. (1990) Initial Public Offerings and Underwriter Reputation, Journal of Finance, 45(4), 1045–1067.
  • Chalk, A.J. and Peavy, J.W., III. (1987) Initial Public Offerings: Daily Returns, Offering Types and the Price Effect, Financial Analysts Journal, 43(5), 65–69.
  • Dimovski, W. and Brooks, R. (2004) Do You Really Want to Ask an Underwriter How Much Money You Should Leave on the Table?, Journal of International Financial Markets, Institutions and Money, 14(3), 267–280.
  • Dimovski, W. and Brooks, R. (2006a) The Pricing of Property Trust IPOs in Australia, Journal of Real Estate Finance and Economics, 32(2), 185–199.
  • Dimovski, W. and Brooks, R. (2006b) Factors Influencing Money Left by Australian Property Trust IPOs, Journal of Property Research 26(3), 169–180.
  • Ibbotson, R.G., Sindelar, J.L. and Ritter, J.R. (1994) The Market’s Problems with the Pricing of Initial Public Offerings, Journal of Applied Corporate Finance, 7(1), 66–74.
  • James, C. and Wier, P. (1990) Borrowing Relationships, Intermediation and the Cost of Issuing Public Securities, Journal of Financial Economics, 29, 149–172.
  • Jenkinson, T. and Ljundqvist, A. (1996) Going Public: The Theory and Evidence on How Companies Raise Equity Finance. Clarendon Press, Oxford.
  • Koop, G.and Li, K. (2001) The Valuation of IPO and SEO Firms, Journal of Empirical Finance, 8, 375–401.
  • KPMG Corporate Finance (Aust) Pty Ltd (2007). “Survey of Australian Capital Markets 2006–7”.
  • Lee, P.J., Taylor, S.L. and Walter, T.S. (1996) Australian IPO Pricing in the Short and Long Run, Journal of Banking and Finance, 20(7), 1189–1210.
  • Ling, D.C. and Ryngaert, M. (1997) Valuation Uncertainty, Institutional Involvement, and the Underpricing of IPOs: The Case of REITs, Journal of Financial Economics, 43(3), 433–456.
  • Loughran, T., Ritter, J.R. and Rydqvist, K. (1994) Initial Public Offerings: International Insights, Pacific-Basin Finance Journal, 2(2–3), 165–199.
  • Newell, G. (2007), The Significance of Property in Industry Based Superannuation Funds, Australia and New Zealand Property Journal, 1 (1), 34–43.
  • Newell, G., and Peng H. W. (2008), LPT Fund Manager Decision-Making in the Emerging Property Sectors, Pacific Rim Property Research Journal, 14 (2), 222–32.
  • Ritter, J.R. (1984) The ‘Hot Issue’ Market of 1980, Journal of Business, 57(2), 215–240.
  • Rock, K. (1986) Why New Issues are Underpriced, Journal of Financial Economics, 15(1–2), 187–212.
  • Ruud, J.S. (1993) Underwriter Price Support and the IPO Under-pricing Puzzle, Journal of Financial Economics, 34(2), 135–151.
  • Tinic, S.M. (1988) Anatomy of Initial Public Offerings of Common Stock, Journal of Finance, 43(4), 789–822.
  • Wang, K., Chan, S.H. and Gau, G. (1992) Initial Public Offerings of Equity Securities: Anomalous Evidence Using REITs, Journal of Financial Economics, 31(3), 381–410.
  • Welch, I. (1989) Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings, Journal of Finance, 44: 421–450.
  • White, H. (1980) A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskesticity, Econometrica, 48(4), 817–838.