Sponsor Backing in Asian REIT IPOs
Joseph T. L. Ooi
Published online: 13 August 2011
Springer Science+Business Media, LLC 2011
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 (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.
Initial public offerings (IPOs) are a well researched and documented phenomenon in
the finance literature.
The two mainstream explanations for underpricing—where
the first day closing price is above the offer price—are based on adverse selection
J Real Estate Finan Econ (2013) 46:299–320
See Ritter and Welch (2002) and Ljungqvist (2008) for comprehensive reviews on the IPO literature.
We appreciate the comments by Piet Eichholtz, Kerry Vandell, Jim Shilling, David Ling, Dennis Capozza,
Ron Donohuge, Walt Torous, Jim Follain, Don Haurin, Norm Miller, Jeff Fisher, Steffen Sebastian, Erkan
Yönder and seminar participants at 2010 International AREUEA meeting at Rotterdam, 2010 MIT-NUS-
Maatricht Symposium at Dedham, MA and 2011 Weimar School conference. Any errors remain the sole
responsibility of the authors.
W.-C. Wong (*)
J. T. L. Ooi
Department of Real Estate, National University of Singapore, 4 Architecture Drive,
Singapore 117 566, Singapore
J. T. L. Ooi