Cash to Spend: IPO Wealth and House Prices

61 Pages Posted: 16 Feb 2019

See all articles by Barney Hartman-Glaser

Barney Hartman-Glaser

University of California, Los Angeles (UCLA) - Anderson School of Management

Mark Thibodeau

Florida International University (FIU) - Hollo School of Real Estate

Jiro Yoshida

Pennsylvania State University - Smeal College of Business; The University of Tokyo - Graduate School of Economics

Date Written: November 30, 2018

Abstract

This study empirically demonstrates the positive impact of initial public offerings (IPOs) on local housing prices in California from 1993 through 2017. In the spirit of the difference-in-difference approach, we test whether hedonic price indexes increase after IPO events more for the areas around IPO firm headquarters. We use the IPO events of public filing, issuing, and lockup expiration to distinguish changes in the shareholders’ expected wealth, assessed wealth, and immediately available wealth, respectively. HPIs increase more within 10 miles of IPO headquarters than in the surrounding area by 1.0% after filing and 0.8% after issuing but approximately zero after lock-up expiration. This result suggests that original shareholders change their housing demand when their wealth changes but not when liquidity constraint is relaxed. The impact is larger when the wealth increase by IPO is larger; e.g., higher offer price, larger IPO proceeds, and larger share underpricing at filing. The impact is also larger for younger and smaller firms.

Keywords: Initial Public Offerings, Housing Value, Hedonic Regression, Wealth Effects, Liquidity Constraints, Executive Compensation

JEL Classification: L26, M12, J33, R21

Suggested Citation

Hartman-Glaser, Barney and Thibodeau, Mark and Yoshida, Jiro, Cash to Spend: IPO Wealth and House Prices (November 30, 2018). Available at SSRN: https://ssrn.com/abstract=3329651 or http://dx.doi.org/10.2139/ssrn.3329651

Barney Hartman-Glaser

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Mark Thibodeau

Florida International University (FIU) - Hollo School of Real Estate ( email )

Miami, FL 33199
United States

Jiro Yoshida (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

368 Business Building
Smeal College of Business
University Park, PA 16802
United States
814-865-0392 (Phone)
814-865-6284 (Fax)

HOME PAGE: http://www.personal.psu.edu/juy18

The University of Tokyo - Graduate School of Economics ( email )

7-3-1 Hongo
Bunkyo-ku, Tokyo 113-0033
Japan
813-5841-5653 (Phone)
813-5841-5521 (Fax)

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