Differences in underpricing returns between REIT IPOs and industrial company IPOs

This paper follows Chan, Stohs, andWang (2001), which argues that the underlying value of the real estate is not by itself the reason for the very substantial differences in underpricing returns between real estate investment trust (REIT) IPOs and industrial company IPOs.We use variables identified in previous studies that have helped explain the underpricing of industrial company IPOs to help explain the underpricing of property trust IPOs. We find that the prospectus forecast dividend yield is a critical variable in the valuation and hence underpricing of REIT IPOs compared to industrial company IPOs. The sentiment towards the market and whether or not the issue is underwritten also impact the underpricing of REITs but the impact is much less than on industrial company IPOs.