Sponsor Backing in Asian REIT IPOs

• Published in: The journal of real estate finance and economics Vol. 46; no. 2; pp. 299 - 320
• Main Authors: Wong, Woei-Chyuan, Ong, Seow-Eng, Ooi, Joseph T. L.
• Format: Journal Article
• Language: English
• Published: Boston Springer US 01.02.2013; Springer Nature B.V
• Subjects: Adverse selection; Asia; Certification; Corporate sponsorship; Developers; Economic models; Economic statistics; Economic theory; Economics; Economics and Finance; Financial Services; Firm value; Hypotheses; Initial public offering; Initial public offerings; Institutional investments; Investors; Literature reviews; Moral hazard; Pricing; Regional/Spatial Science; REITs; Reputations; Signalling; Studies; Venture capital; Underpricing; Signaling; Moral Hazard; IPO sponsor; Developer IPOs
• ISSN: 0895-5638; 1573-045X
• DOI: 10.1007/s11146-011-9336-x

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 (Journal of Finance 44:393–420, 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 (Journal of Finance 44:393–420, 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.