Gianluca Marcato
Professor of Finance and Real Estate
Head of Department, Real Estate and Planning
Director, Certificate in Government Property Leadership
Director, INREV / Henley Certificate in Non-Listed Real Estate Investment
IPO Underpricing
Political Uncertainty, Culture and IPO Activity (with C. Zheng) - Revise and Resubmit
Geographic Location of Real Estate Assets and IPO Valuation: An Investor Recognition Story (with C. Zheng)
Why Are Real Estate IPOs Different? The Role of Underlying Real Estate Markets and REIT Regimes in IPO Valuation (with C. Zheng)
Publications
IPO Underpricing and the Role of Geographic and Asset Diversification: Evidence from US REITs (with D. Ling and C. Zheng)
Real Estate Economics, 2020
Abstract: Following recent developments in the asset pricing literature on geographic concentration, we complement classic theories based on information asymmetry and explain the short-run performance of REIT IPOs through an investor base mechanism. We analyze the U.S. market and show that issuers are more likely to underprice when a REIT is more geographically concentrated. In particular, by adopting an identification strategy of preand after-IPO returns, we find evidence for an investor base channel rather than a diversification discount channel. In addition, geographic portfolio concentration has a stronger impact on the initial returns of REIT IPOs than property type concentration. Finally, we find that lower deadweight costs at the time of an IPO weaken the influence of geographic concentration on initial returns. Our results are robust to the firm’s geographic concentration in economically defined regions, different measures of deadweight costs, the control of information environment of the portfolio and headquarters markets and to controlling for the REIT’s property type focus.
Market Integration, Country Institutions and IPO Underpricing (with S. Milcheva and C. Zheng)
Journal of Corporate Finance, 2018
Abstract: This paper represents a first attempt to employ a macroeconomic approach to explain the high and varying IPO underpricing within a single emerging market. We examine the empirical impact of trade openness on the short-run underpricing of initial public offerings (IPOs) using city-level data. Particularly, we argue that urban economic openness (UEO) has a significant impact on the productivity and on prices of both direct and indirect real estate due to productivity gains of companies in more open areas. This in turn positively affects the firm’s profitability, enhancing the confidence in local real estate markets and future company performance, hence decreasing the uncertainty of the IPO valuation. As a result, issuers have less incentive to underprice IPO shares. We use a sample of Chinese real estate IPOs, which offer a suitable laboratory thanks to their strong geographic investment patterns focused locally and a country with a highly heterogeneous openness across regions. Controlling for traditional firm- and issuing-specific characteristics of IPOs that are used for developed markets and Chinese-related features (i.e. listing location and state ownership), we find the evidence that companies investing in economically more open areas experience less IPO underpricing. Our results show great explanatory power and are robust to different specifications.
Urban Economic Openness and IPO Underpricing (with S. Milcheva and C. Zheng)
Journal of Real Estate Finance and Economics, 2017
Abstract: This paper represents a first attempt to employ a macroeconomic approach to explain the high and varying IPO underpricing within a single emerging market. We examine the empirical impact of trade openness on the short-run underpricing of initial public offerings (IPOs) using city-level data. Particularly, we argue that urban economic openness (UEO) has a significant impact on the productivity and on prices of both direct and indirect real estate due to productivity gains of companies in more open areas. This in turn positively affects the firm’s profitability, enhancing the confidence in local real estate markets and future company performance, hence decreasing the uncertainty of the IPO valuation. As a result, issuers have less incentive to underprice IPO shares. We use a sample of Chinese real estate IPOs, which offer a suitable laboratory thanks to their strong geographic investment patterns focused locally and a country with a highly heterogeneous openness across regions. Controlling for traditional firm- and issuing-specific characteristics of IPOs that are used for developed markets and Chinese-related features (i.e. listing location and state ownership), we find the evidence that companies investing in economically more open areas experience less IPO underpricing. Our results show great explanatory power and are robust to different specifications.