Limited Partnerships and Reputation Formation

Abstract

This paper analyzes the optimal quality decision of a producer in a multi-period setting with reputation effects. Using a unique database of returns on real estate limited partnerships (RELPs), we empirically examine alternative theoretical predictions of optimal producer strategy. In particular, we test whether the producers in our market invest in reputation building by initially selling high quality goods and then lowering quality. Using a variety of statistical tests, we find evidence for reputation building, both in the aggregate and for individual developers.Associate Professors of Finance at the Stern School of Business and Assistant Professor of Finance at the University of Georgia. We thank Stephen Brown, John Clapp, Ned Elton, William Greene, Martin Gruber, George Hamilton, Spencer Jefferies, Chris Mayer, Joe Perez, Rangarajan Sundaram, Gregory Udell and seminar participants at the AFA and the University of Connecticut for helpful comments. We are especially grateful to Matt Spiegel for his discussion of an earlier draft of this paper at the AFA Meetings. We also wish to thank Richard Levine for research assistance with this project. Data for this project were acquired using a research grant from the Stern School of Business. Please address comments to the authors at the Leonard N. Stern School of Business, New York University, Kaufman Management Education Center, Suite 9-190, 44 West 4th Street, New York, NY 10012-1126, and Terry College of Business, Brooks Hall, University of Georgia, Athens GA, 30602-6253, or through email: jkallber@stern.nyu.edu, cliu@stern.nyu.edu and asriniva@terry.uga.edu, respectively. Limited Partnerships and Reputation Formation AbstractThis paper analyzes the optimal quality decision of a producer in a multi-period setting with reputation effects. Using a unique database of returns on real estate limited partnerships (RELPs), we empirically examine alternative theoretical predictions of optimal producer strategy. In particular, we test whether the producers in our market invest in reputation building by initially selling high quality goods and then lowering quality. Using a variety of statistical tests, we find evidence for reputation building, both in the aggregate and for individual developers.2

Rationale behind IPO Underpricing: Evidence from Asian REIT IPOs

“…We also control for fixed effects related to property type and the market economy as well as a binary variable for maiden issue ( FIRST ) if the IPO is the first of a particular property type in the market economy. Kallberg, Liu and Srinivasan () find that the quality of a real estate limited partnership decreases with each successive partnership issued by a given sponsor. To control for market learning in the initial return regressions, we created a numerical variable that captures the sequence of the IPOs done by each sponsor; e.g ., this variable takes the value of 1 for the very first IPO done by a sponsor, 2 for the second IPO done by the same sponsor and so on ( MARKET LEARNING ).…”