Real earnings management, liquidity risk and REITs SEO dynamics

Publication Type

Journal Article

Publication Date

1-2018

Abstract

We analyze how REITs managers use real earnings management to address issues of liquidity risk and increased cost of capital they face during seasoned equity offerings. We show that REITs managers engage in real earnings management instead of accrual earnings management to attract more uninformed trading in order to provide the liquidity service at a lower cost during seasoned equity offerings. We find REITs with higher liquidity risk are more likely to manipulate earnings prior to equity offerings and uninformed trading is higher following real earnings management. Firms set the offer price at a smaller discount after engaging in real earnings management and stock returns decline in the long run. The findings are consistent with real option and liquidity risk explanations for equity offerings.

Keywords

Real estate investment trust, Seasoned equity offerings, Liquidity risk, Real earnings management

Discipline

Finance and Financial Management | Real Estate

Publication

Journal of Real Estate Finance and Economics

Volume

56

Issue

3

First Page

410

Last Page

442

ISSN

0895-5638

Identifier

10.1007/s11146-017-9649-5

Publisher

Springer

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1007/s11146-017-9649-5

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