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Cash flow uncertainty and IPO underpricing: evidence from income guarantee in Thai REITs

Kanis Saengchote (Department of Banking and Finance, Faculty of Commerce and Accountancy, Chulalongkorn University, Bangkok, Thailand)
Chittisa Charoenpanich (Bank of Ayudhya Public Company Limited, Bangkok, Thailand)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 5 January 2021

Issue publication date: 1 September 2021




The purpose of this article is to investigate the relationship between cash flow uncertainty and the underpricing of real estate investment trust (REIT) initial public offerings (IPOs) using hand-collected data on income guarantee in Thailand from January 2005 to December 2019.


This article uses linear regression to determine the relationship between underpricing (initial return) and proxy for cash flow uncertainty (income guarantee), controlling for other factors. Because issuers can use several actions to signal their quality under asymmetric information, the joint decisions are analyzed as simultaneous equations and estimated using three-stage least square (3SLS) to address potential endogeneity concern.


This article finds that underpricing, on average, is negatively related to income guarantee, which is a proxy for ex ante cash flow uncertainty. The relationship is economically and statistically significant and robust to simultaneous equations estimation. Further investigation shows that REITs with income guarantee tend to have lower systematic risk (measured by CAPM beta) and returns, making the nature of some REITs more debt-like than equity-like.

Practical implications

For issuers, the result suggests that offering income guarantee (which is more costly for assets with lower quality) can be a useful signal of asset quality to investors and reduce IPO discount. For institutional and retail investors, the results are informative about the risk-return tradeoffs in REIT IPO investment opportunities. Income guarantees makes REIT exposure more fix income-like, so there is a need to consider the credibility of the guarantor as well.


This article is the first to use income guarantee as an ex ante measure of cash flow uncertainty and explicitly investigates its linkage to IPO underpricing. This aspect of uncertainty and IPO underpricing remains little-studied in the academic literature. It also contributes to the growing literature of REIT IPOs in Asia.



Saengchote, K. and Charoenpanich, C. (2021), "Cash flow uncertainty and IPO underpricing: evidence from income guarantee in Thai REITs", Journal of Property Investment & Finance, Vol. 39 No. 6, pp. 590-608.



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