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Does asset location and concentration explain REIT IPO valuation?

Ling, D. C., Marcato, G. and Zheng, C. (2020) Does asset location and concentration explain REIT IPO valuation? Real Estate Economics. ISSN 1540-6229 (In Press)

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To link to this item DOI: 10.1111/1540-6229.12327

Abstract/Summary

Following recent developments in the asset pricing literature on geographic concentration, we complement classic theories based on information asymmetry and explain the short-run performance of REIT IPOs through an investor base mechanism. We analyze the U.S. market and show that issuers are more likely to underprice when a REIT is more geographically concentrated. In particular, by adopting an identification strategy of pre- and after-IPO returns, we find evidence for an investor base channel rather than a diversification discount channel. In addition, geographic portfolio concentration has a stronger impact on the initial returns of REIT IPOs than property type concentration. Finally, we find that lower deadweight costs at the time of an IPO weaken the influence of geographic concentration on initial returns. Our results are robust to the firm’s geographic concentration in economically defined regions, different measures of deadweight costs, the control of information environment of the portfolio and headquarters markets and to controlling for the REIT’s property type focus.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > Real Estate and Planning
ID Code:91245
Publisher:Wiley

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