IPO market timing: evidence from the operating performance of REITs

Abstract

Purpose

The purpose of this paper is to consider the operating performance of real estate investment trust initial public offerings (REIT IPOs) as a measure to find additional evidence of market timing in this sector.

Design/methodology/approach

A sample of REIT IPOs is analyzed to determine the relationship between IPO clustering and several measures of REIT operating performance.

Findings

The results suggest that timing the market by marginal firms in the REIT sector would be difficult, due to the transparent nature of REITs, leading to lower level of informational asymmetry between REIT managers and investors. Consistent with results found for non‐REIT firms in industry clusters, no evidence was found of a significant difference between the operating performance of REITs which are part of an IPO cluster and those that went public outside of the identified cluster periods.

Practical implications

This study shows that REIT market is efficient and would not allow REIT managers to time the market.

Originality/value

Using stringent measures of identifying REIT IPO clusters and operating performance as a measure to gauge market timing, this study differs from previous studies and provides additional and robust evidence of transparent nature of REITs that leads to reduced information asymmetry between managers and investors. This result supports the theory that REITs are more transparent and thus less likely to be over‐invested during IPO cluster periods.

Citation

Sah, V. and Seagraves, P. (2012), "IPO market timing: evidence from the operating performance of REITs", Journal of Property Investment & Finance, Vol. 30 No. 1, pp. 58-68. https://doi.org/10.1108/14635781211194809