The Pricing of Seasoned Equity Offerings: Evidence from REITs

Real estate investment trusts (REITs) have been a very active sector in the capital market over the last few years. This paper examines the pricing of seasoned equity offers by equity REITs during 1991–1996. Consistent with Parsons and Raviv's model, we find that SEOs by REITs are underpriced with respect to both the closing price on the day before and the closing price on the day of the offer. Underpricing depends on the institutional ownership of the firm's common stock. Issues by firms with higher institutional ownership are more underpriced for post-1990 REITs. Further, consistent with the notion that theories of IPO pricing apply to SEOs as well, the underpricing of SEOs is a function of the issue size and of the underwriter's reputation.     

Financing Choice and Liability Structure of Real Estate Investment Trusts

We conduct an analysis of public financial offerings of equity Real Estate Investment Trusts (REITs), with a focus on liability structure effects and whether or not firms target longer-run debt ratios. Our major findings are that (1) proceeds from equity offers are more likely to fund investment, whereas public debt offer proceeds are typically used to reconfigure the liability structure of the firm; (2) public debt issuers are often capital constrained and target total leverage ratios to retain an investment grade credit rating; and (3) the preoffer liability structure affects the issuance choice decision, in that firms with higher preoffer levels of secured (unsecured) debt tend to issue equity (public debt). Other notable findings are that the market for public REIT debt is integrated with the broader debt markets and that higher credit quality firms issue longer-maturing bonds.     

Risk and Return on Real Estate: Evidence from Equity REITs

We analyze monthly returns on an equally weighted index of eighteen to twenty-three equity (real property) real estate investment trusts (REITs) that were traded on major stock exchanges over the 1973–87 period. We employ a multifactor Arbitrage Pricing Model using prespecified macroeconomic factors. We also test whether equity REIT returns are related to changes in the discount on closed-end stock funds, which seems plausible given the closed-end nature of REITs.
Three factors, and the percentage change in the discount on closed-end stock funds, consistently drive equity REIT returns: unexpected inflation and changes in the risk and term structures of interest rates. The impacts of these variables on equity REIT returns is around 60% of the impacts on corporate stock returns generally. As expected, the impacts are greater for more heavily levered REITs than for less levered REITs. Real estate, at least as measured by the return performance of equity REITs, is less risky than stocks generally, but does not offer a superior risk-adjusted return and is not a hedge against unexpected inflation.     

Entrepreneurial finance meets organizational reality: comparing investment practices and performance of corporate and independent venture capitalists

This paper investigates the effect of compensation of corporate personnel on their investment in new technologies. We focus on a specific corporate activity, namely corporate venture capital (CVC), describing minority equity investment by established‐firms in entrepreneurial ventures. The setting offers an opportunity to compare corporate investors to investment experts, the independent venture capitalists (IVCs). On average, we observe a performance gap between corporate investors and their independent counterparts. Interestingly, the performance gap is sensitive to CVCs' compensation scheme: it is the largest when CVC personnel are awarded performance pay. Not only do we study the association between incentives and performance but we also document a direct relationship between incentives and the actions managers undertake. For example, we observe disparity between the number of participants in venture capital syndicates that involve a corporate investor, and those that consist solely of IVCs. The disparity shrinks substantially, however, for a subset of CVCs that compensate their personnel using performance pay. We find a parallel pattern when analyzing the relationship between compensation and another investment practice, staging of investment. To conclude, the paper investigates the three elements of the principal‐agent framework, thus providing direct evidence that compensation schemes (incentives) shape investment practices (managerial action), and ultimately investors' outcome (performance). Copyright © 2010 John Wiley & Sons, Ltd.     

Capital investment and employment in the information sector

Estimation of the employment effects of changes in capital investment is a standard tool in public policy debates. Typically, such predictions are based on employment multipliers derived from Input–Output analysis. In this paper, we measure the employment effects of changes in capital investment in the U.S. information sector by econometrically estimating an “employment multiplier” from historical data. The estimated multiplier is 10 information sector jobs for each million dollars in expenditure, and perhaps 24 new jobs per million dollars invested across the entire economy. Employment multipliers derived from the Input–Output methodology average about 16 jobs per million, but the multiplier includes jobs outside the information sector. Including employment spillovers, our estimates suggest the multipliers from Input–Output models are plausible. We also note that information sector jobs have substantially higher median earnings than the private sector average, so the economic significance of changes in information sector employment are greater than might first appear. Our findings may be useful in debates over changes in industry regulation that could affect investment.     

场外市场与私募股权投资退出

场外市场是沪深证券交易市场的有益补充,是建立多层次资本市场体系中的重要一极,由于其相对较低的进入门槛．在中小企业直接融资体系及企业资产要素流动中扮演着极为重要的角色,而私募股权投资基金则是场外市场的重要交易主体。文章着重论述了私募股权投资退出与场外市场是相互促进、相辅相成的关系,规范统一有序的场外市场为私募投资退出提供了广阔舞台,私募投资退出的顺畅又为场外市场注入了流动性活力。因此．当前形势下加强场外市场建设对于私募股权投资退出具有重要的现实意义。     

The Growth of Residential Capital Since World War II

The growth rate of residential capital in constant dollars shows a downward trend. Its decline since the early postwar years conforms broadly to the growth retardation found in an earlier study for the 1890–1950 period. The article analyzes the forces associated with the slowing rate of real capital increase in 1945–77 and concludes that they differed substantially from those operative in the earlier era. The growth patterns of residential and of fixed business capital since World War II have been quite dissimilar and generally in disfavor of the residential sector.     

Inflation and Real Estate Investment Value

It is demonstrated that the inflation rate must be reflected in the anticipated benefit flows used in investment value models. When flows are left unadjusted, a biased value estimate results. It is also shown that the actual effects of the inflation rate on investment value will depend on the relationships of original cost, the debt/equity ratio, and the level of depreciation expense. Inflation has a fundamentally negative impact on value traceable to capital gains and depreciation effects. This can be offset by the use of debt financing.     

Firm Investment Behavior and Collective Bargaining Strategy

Using survey data on labor union coverage at the firm level, this paper examines union-nonunion differences in investment activity among 706 U.S. companies during the 1970s. Consistent with a model of union rent seeking, firm-level collective bargaining is associated with significantly lower physical capital and R&D investment, even after controlling for firm and industry characteristics. Deleterious union effects on investment are considerable throughout the 1972–80 period, but they vary across industries. Without significant changes in collective bargaining power or strategies, diminished investment activity by unionized companies is likely to exacerbate the already considerable decline in U.S. union coverage     

Privately Versus Publicly Held Asset Investment Performance

Classic asset pricing is problematic as a method to assess privately held asset investment performance. We propose an alternative approach that involves adjusting the characteristics of assets constituting an index or portfolio to match the asset characteristics of a reference index or portfolio. This approach is applied to commercial real estate, where we create an index of REIT returns to compare to the NCREIF index. To enhance comparability, return indices are adjusted for partial-year financial data, leverage, asset mix and fees. Adjusted results over a 1980–1998 sample period show general convergence between the indices, although an annual return difference of over three percentage points remains in favor of public market asset ownership. Possible causes of the investment performance gap include liquidity and geography as missing risk factor adjustments, an unrepresentative sample period, and the form in which commercial real estate assets are held.     

Telecommunications in the developing world : Investment decision and performance monitoring

The contention that there is significant underinvestment in telecommunications services in developing nations is supported by cross country data. The accepted approach to determining whether investment should take place involves: identifying unsatisfied demand; determining the least cost solution; and assessing whether benefits will exceed costs. The author draws upon the experience of World Bank involvement in telecommunications projects in developing nations and concludes that the trend in some developing countries toward increased investment in the sector will continue, furthering the goals of increased economic efficiency and improved social equity.     

The Impact of Competition on Investment: Evidence From California Hospitals*

I examine the relationship between bargaining leverage and capital investment using data on California’s hospital markets. I find evidence that investment increases with bargaining leverage; a hospital whose bargaining position improves by one standard deviation will increase its investment rate by 16 percentage points. A positive causal relationship between bargaining leverage and investment fits the institutional details of the health care sector, where many firms have non-profit tax status, making it difficult to return monopoly rents to shareholders. Consistent with this explanation, I find that non-profit hospitals with bargaining leverage invest more than for-profit ones, all else equal. I do not find strong evidence that financing constraints matter disproportionately for hospitals operating in more competitive markets, supporting the hypothesis that the incremental investment may not be socially efficient.     

Financial Flexibility and Investment: Evidence from REIT At‐the‐Market (ATM) Equity Offerings

This article examines changes in real estate investment around the establishment of at‐the‐market (ATM) equity programs by equity REITs. We document a significant increase in the rate of investment following an ATM program announcement and its subsequent use. However, we find that ATM access has a differential impact on the investment activity of REITs facing more significant financial constraints. We also provide further evidence that REITs with ATM programs generate positive long‐run returns in excess of that of similarly timed SEOs.     

Real Estate Investment Trusts, Small Stocks and Bid-ask Spreads

This study examines the liquidity of Real Estate Investment Trusts (REITs), as measured by their bid-ask spread. We find that REIT spreads have increased over the period 1986–1990, are inversely related to market capitalization, and are similar in magnitude to spreads on other stocks of comparable size. Analysis of variance tests indicate that REIT spreads are similar across equity, mortgage and hybrid asset types. Multivariate regression results indicate that market capitalization is the primary determinant of REIT bid-ask spreads, and spreads are larger for National Association of Securities Dealers Automated Quotations (NASDAQ) REITs than for New York Stock Exchange (NYSE) REITs. The regression results also indicate that spreads are lower for equity REITs than for mortgage or hybrid REITs, and are inversely related to the fraction of the REIT's shares held by institutional investors. The similarity between REIT spreads and those of other common stocks holds in both bull and bear real estate markets and suggests that, from a liquidity perspective, REITs are similar to other common stocks.     

我国创投机构投资阶段选择及其绩效影响的实证研究

在我国创投市场不断繁荣但投资阶段显著后移的背景下,本研究就创投机构投资阶段选择的绩效影响问题进行了探讨,并利用2003—2008年我国创投产业数据进行实证分析,论证了早期投资和后期投资两种投资阶段选择正向影响创投机构绩效的可能性与边界条件。具体而言,当创投机构关联网络开放时,高声誉创投机构的早期投资较后期投资利于投资绩效,低声誉创投机构的后期投资较早期投资利于投资绩效;当创投机构关联网络封闭时,后期投资较早期投资利于创投机构绩效,且声誉资本强化后期投资的绩效影响。在此基础上,本研究对我国创投机构的实践及引导基金的运作提出相应的意见与建议,以期推动我国创投产业的有序发展与创业环境的不断优化。     

Entrepreneurial beacons: The Yale endowment,run‐ups,and the growth of venture capital

Research summary : This article investigates the social context of entrepreneurship in organizational sectors. Prior research suggests that firm foundings are driven by collective patterns of activity—such as patterns of prior foundings in a given sector. Building on research on social salience and signals, we consider the influence of singular sector‐level triggers, which we call entrepreneurial beacons. We argue that the actions or outcomes of single, salient organizations attract and motivate entrepreneurs, thus increasing the rate of foundings. We test this logic by examining the impact of the Y ale U niversity endowment's investment choices and of venture‐capital‐backed IPO run‐ups on venture‐capital foundings between 1984 and 2011. We find support for the existence and influence of beacons and outline boundary conditions for their effects . Managerial summary : What leads entrepreneurs to found new companies in nascent sectors? In contrast to prior research, which emphasizes patterns of activity, we argue that entrepreneurial activity can sometimes be driven by the actions of a singular trigger—what we call an entrepreneurial beacon. We examine the influence of two such beacons, Y ale U niversity's endowment investments and exceptional venture‐capital‐backed IPO run‐ups, on the founding of new venture‐capital firms over a 28‐year period. We find that Y ale's increased allocations to the venture‐capital asset‐class has a significant influence on the founding of new venture‐capital firms, while exceptional venture‐capital‐backed IPO run‐ups only influence venture‐capital foundings under certain conditions. Overall, we offer an explanation for heretofore anecdotal accounts of certain organizations or events that appear to have an outsized influence on entrepreneurial activity . Copyright © 2016 John Wiley & Sons, Ltd.     

Environmental Regulation, Investment Timing, and Technology Choice

We test whether environmental regulation affects investment decisions, using Census data for individual paper mills. New mills in states with strict environmental regulations choose cleaner production technologies, with differences in air and water pollution regulation also influencing technology choice. Examining investment allocation across existing plants, we find that abatement and productive investment tend to be scheduled together. However, plants with high abatement investment over the entire period spend significantly less on productive capital. This seems to reflect both environmental investment 'crowding out' productive investment within a plant, and firms shifting investment towards plants facing less stringent abatement requirements.     

Personal Residential Real Estate Investment in Australia: Investor Characteristics and Investment Parameters

To date our understanding of the factors affecting the housing supply stem from the private provision of new units through real estate development. This article investigates a different aspect of housing supply, the private provision of rental housing through investment in existing properties. Using logistic regression and a series of micro data sets of Australian households, we examine the investment decision of residential rental property investors over the period 1990–2004. The sample period incorporates a full real estate cycle. Our results indicate that wealth-related factors are the dominant factors driving these investments. Life-cycle factors such as marriage and children play a less important role. Most of the determinants of income property investment do not vary with the property cycle. Marriage is an exception. It became more important as house prices rose.     

REIT Stock Price Volatility and the Effects of Leverage

This article sheds light on several puzzling empirical observations. We examine the volatility implications of equity Real Estate Investment Trust (REIT) stock returns over the sample period from January 1985 through October 2012. We find a negative “leverage effect” in the pre‐ and post‐Greenspan era, but not during the Greenspan era (circa 1994–2006). We argue that the positive elasticity of variance with respect to the value of equity during the Greenspan era can be explained by a decline in the spread between the yield on commercial mortgages and 10‐year Treasuries, which triggered a wealth transfer from REIT equity holders to REIT debt holders. We also argue that the declining commercial‐mortgage‐10‐year‐Treasury yield spread during the Greenspan era allowed REITs to take on far more risk than most people realized. We then document that average REIT stock return volatility increased significantly in the 2007–2010 period in the midst of a historic decline in REIT stock prices. The results have significant implications for the good deal of interest and debate in the media over the status of REITs and whether equity REITs have become excessively risky relative to the returns they generate.     

An Analysis of REIT Security Issuance Decisions

This article tests the ability of traditional capital structure theories to explain the issuance decisions of real estate investment trusts (REITs). For issuances made between 1997 and 2006, we find strong support for the market timing theory of capital structure. Controlling for past returns and growth, a REIT is more likely to issue equity when its price-to–net asset value ratio is high. This suggests that REITs issue equity in public markets when the cost of equity capital is lower in the public market than in the private market. Consistent with traditional market timing, REITs are more likely to issue equity after experiencing large price increases. We also find some support for REITs following the trade-off theory of capital structure. REITs are less likely to issue debt when proxies for expected bankruptcy costs are high.