The Impact of Initial Public Offerings’ Characteristics on Real Estate Investment Trusts’ Underpricing: The Saudi Context

Abstract

In recent years, many Real Estate Investment Trusts (REIT) have issued to initial public offerings (IPO) in the Saudi Stock Exchange “Tadawul.” Occasionally, trust fund issuers such as REITs may face challenges in selling their shares to the public. One of the challenges related to underpricing is trading the stock on the first day of the market. This study investigates the relationship between REIT characteristics and share underpricing for a sample of REITs that are listed on the Saudi Stock Exchange “Tadawul.” The purpose of the study is to focus on one of the challenges that is related to the IPOs of REITs. Using a sample of 17 IPOs of REITs listed on the Saudi Arabian Stock Exchange “Tadawul” for the period between 2016 and 2020, we show significant negative associations between the number of IPO underwriters, number of shares subscribed, and the firms’ dividend payouts and REITs’ underpricing. The result also shows a significant positive association between the number of subscription days and REITs’ underpricing. The research should provide significant implications for regulators and market participants in the light of the public offering and the REIT sector. KEYWORDS public offering, financial performance, real estate, investment trusts, stock exchange, Tadawul