Sponsor Backing in Asian REIT IPOs

Posted: 13 Feb 2013

See all articles by Seow Eng Ong

Seow Eng Ong

National University of Singapore (NUS) - Department of Real Estate

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate

Woei‐Chyuan Wong

Independent

Date Written: February 13, 2013

Abstract

This paper tests the significance of sponsors in REIT IPOs viz-a-viz quality certification, signal of firm value, and commitment to alleviate moral hazard concerns. We model the REIT pricing and sponsor share retention decisions within a simultaneous decision framework as motivated by Grinblatt and Hwang (1989). We find positive and significant bidirectional relationship between the fraction of shares held by the sponsor in IPO and underpricing which is consistent with Grinblatt and Hwang's (1989) signaling model. Our results also support the commitment hypothesis that developers that spin off REITs tend to hold more shares at IPO, possibly to compensate investors for the potential moral hazard problems in the aftermarket.

Keywords: Underpricing, Signaling, IPO sponsor, Moral hazard, Developer IPOs

Suggested Citation

Ong, Seow Eng and Ooi, Joseph T. L. and Wong, Woei‐Chyuan, Sponsor Backing in Asian REIT IPOs (February 13, 2013). Journal of Real Estate Finance and Economics, Vol. 46, No. 2, 2013, Available at SSRN: https://ssrn.com/abstract=2216891

Seow Eng Ong (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore
01-65-6516-3552 (Phone)
01-65-6774-8684 (Fax)

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Woei‐Chyuan Wong

Independent

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