1 Market Timing Behavior of the Secondary Equity Offerings of REITs

In corporate finance literature, the concept of market timing means that managers would make their equity finance decisions according to the conditions of the capital market. REITs are special investment vehicles and are not included in the studies of general stocks. Thus the question is: do REITs have the same market timing behavior in their secondary equity offerings like general stocks? In this study, we would use the secondary equity issues data of US equity REITs to analyze the market timing behavior of REITs. We are trying to learn about the short-run and long-run performance of REITs around equity issues, to find out the market timing pattern of REITs SEOs. Our findings could help us understand the meanings behind the equity issuing decisions of REITs managers, and help investors make appropriate reaction to these signals. Our results show some evidence of the market timing behavior under the asymmetric information hypothesis. However, compared to general stocks, the timing behavior is less obvious for REITs. With regard to the long-run performance, no long-run underperformance is found after REITs SEOs. These results have two implications. First, although REITs are comparatively transparent than industrial firms, the REITs managers still have the market timing abilities to utilize the market conditions. Asymmetric information and adverse selection still exits for REITs, although the timing behavior is less obvious for REITs compared to general stocks. Second, the absence of long-run return anomaly after SEOs of REITs means that the market efficiency is not violated