The effect of corporate governance mechanisms on IPO performance : the case of U.S. equity real estate investment trusts

Abstract

Purpose: The purpose of this thesis is to shed more light on the impact of corporate governance mechanisms on the Initial Public Offering (IPO) performance of U.S. Equity Real Estate Investment Trusts (REIT) in the short and long run. Design/methodology/approach: I conduct multi-linear regressions on a sample of 89 US REIT IPO for the years 2003 to 2016. I compute the market adjusted excess returns for each of the first 5 days following the IPO to measure short-run IPO performance and the semi-annual cumulative abnormal returns for each of the three years following the IPO to measure long-run IPO performance. Findings: We find that U.S. REIT IPOs, mainly IPOs with relatively small asset size, exhibit short run underpricing and long run overperformance. However, the overall level of underpricing for U.S. REIT IPOs is not very significant. REITs that adopt strong corporate governance structures receive high IPO valuations in the short run. We find mixed results regarding the relation between long-run IPO performance and corporate governance. Research limitations/implications: The first limitation is that more robustness tests could have been made. The second limitation is using only two performance measures, although there is a broad set of approaches that could be used to measure the impact of corporate governance mechanisms on IPO performance such as offer-to-open returns, open-to-close returns, buy and hold returns and wealth relative ratio. Practical implications: This study will help REIT firms that are planning to go public understand the effect of certain corporate governance mechanisms on their expected IPO performance. Originality/value: This thesis evaluates the effect of corporate governance on the short-run and long-run U.S. Equity REIT IPO returns.