Real Earnings Management, Liquidity Risk and REITs SEO Dynamics

Xiaoying Deng () and Seow Eng Ong ()
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Xiaoying Deng: Shanghai University of Finance and Economics

The Journal of Real Estate Finance and Economics, 2018, vol. 56, issue 3, No 4, 410-442

Abstract: Abstract We analyze how REITs managers use real earnin gs 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 (search for similar items in EconPapers)
JEL-codes: G14 G23 G32 M41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s11146-017-9649-5

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