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 P arsons and Raviv's model, we find that SEOs by REITs are underpriced with r espect 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 owner ship are more underpriced for post-1990 REITs. Further, consistent with the notion that theories of IPO pricing apply to SEOs as well, the underpricin g of SEOs is a function-of the issue size and of the underwriter's reputati on.