Earnings management, stock issues, and shareholder lawsuits

DuCharme, Larry L.; Malatesta, Paul H.; Sefcik, Stephan E.

doi:10.1016/s0304-405x(03)00182-x

Cited by 452 publications

(274 citation statements)

References 25 publications

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“…High reported earnings prior to and/or at the time of the IPO can lead to a higher offer price and a commensurate increase in owners' wealth in the short-term. This wealth-increasing incentive can encourage owners/managers to engage in 'opportunistic' income-increasing earnings management (e.g., Teoh et al, 1998a;DuCharme et al, 2001DuCharme et al, , 2004Roosenboom et al, 2003;Chen et al, 2005). On the other hand, the increased stakeholder scrutiny and monitoring by auditors and others may cause income-increasing earnings management to be less prevalent than prior research suggests (Ball & Shivakumar, 2008).…”

Section: Ipo Earnings Management In Generalmentioning

confidence: 99%

“…Several empirical studies focus on the relationship between earnings management and post-IPO performance (e.g., Teoh et al, 1998a;Teoh et al, 1998;DuCharme et al, 2001DuCharme et al, , 2004Roosenboom et al, 2003;Abdul Rahman & Wan Abdullah, 2005). Teoh et al (1998a) provide evidence that, on average, IPO issuers increase accruals and report earnings in excess of cash flows in the IPO year.…”

Section: Earnings Management and Post-ipo Long Run Stock Market Perfomentioning

confidence: 99%

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Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance

Ahmad‐Zaluki

Campbell

Goodacre

2011

The International Journal of Accounting

127

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We find evidence of income-increasing earnings management in Malaysian IPOs, which occurs primarily for IPOs during a period of severe economic stress (the East Asian crisis). Within the high ownership concentration Malaysian market, post-IPO control concerns also appear to constrain IPO earnings management: owners seem willing to accept reduced IPO proceeds and signaling opportunities to increase the likelihood of retaining control of the company post-IPO. The requirement to provide a profit guarantee does not seem to greatly affect earnings management. IPO companies engaging in aggressive income-increasing earnings management have significantly worse market-based performance than their more conservative counterparts, but again only for IPOs issued during the economic crisis period. Overall, the results suggest that personal liquidity concerns are an important factor in IPO decisions during the economic crisis. Professor of Accounting and Finance at the University of Stirling. We appreciate the very helpful, constructive comments from Rashad Abdel-Khalik (the editor) and the two anonymous referees who have contributed significantly in helping improve the structure of the paper and the arguments therein. We have also benefited from the comments of Chris Veld, participants at the EAA Annual Conference at University College Dublin and the BAA Annual Conference at Royal Holloway, University of London. The financial support of the Malaysian government (JPA) and the Universiti Utara Malaysia is gratefully acknowledged (for Nurwati A. Ahmad-Zaluki). We thank the Public Information Centre, Kuala Lumpur Stock Exchange (Bursa Malaysia) for the usage of the library and Brahim Saadouni from the University of Manchester for the provision of his PACAP database and his collection of Malaysian prospectuses. The usual disclaimer applies. JEL classification: G32 Earnings management in Malaysian IPOs: the EastAsian crisis, ownership control and post-IPO performance AbstractWe find evidence of income-increasing earnings management in Malaysian IPOs, which occurs primarily for IPOs during a period of severe economic stress (the East Asian crisis). Within the high ownership concentration Malaysian market, post-IPO control concerns also appear to constrain IPO earnings management: owners seem willing to accept reduced IPO proceeds and signaling opportunities to increase the likelihood of retaining control of the company post-IPO. The requirement to provide a profit guarantee does not seem to greatly affect earnings management. IPO companies engaging in aggressive incomeincreasing earnings management have significantly worse market-based performance than their more conservative counterparts, but again only for IPOs issued during the economic crisis period. Overall, the results suggest that personal liquidity concerns are an important factor in IPO decisions during the economic crisis. JEL classification: G32

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Section: Ipo Earnings Management In Generalmentioning

confidence: 99%

Section: Earnings Management and Post-ipo Long Run Stock Market Perfomentioning

confidence: 99%

Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance

Ahmad‐Zaluki

Campbell

Goodacre

2011

The International Journal of Accounting

127

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“…This increase in exposure came through substantial grants of options and stock, DuCharme, Malatesta, & Sefcik (2004). By the end of the decade, managers' potential incentives to affect the share prices of their companies had increased dramatically.…”

Section: Ceo Shareholding and Earnings Managementmentioning

confidence: 99%

Corporate Goverance Determinants of Earnings Management: Evidence from Nigerian Quoted Companies

Omoye¹

2014

MJSS

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“…Prior studies report that IPOs manage their earnings aggressively and opportunistically through income-increasing accruals to increase offering proceeds in the IPO year. But they may face poor post-IPO stock returns (PastorLlorca and Poveda-Fuentes, 2006;DuCharme et al, 2001DuCharme et al, , 2004Roosenboom et al, 2003;Teoh et al, 1998a;Ahmad-Zaluki et al, 2011) and they are more likely to delist for performance failure (Li et al, 2006). Of more, IPO companies that manage their earnings aggressively also put too high a price on the new issues, thereby leading to a decrease in the degree of underpricing (Kim and Park, 2005;Kimbro, 2005).…”

Section: Introductionmentioning

confidence: 99%

Earnings management and performance of French IPO companies

Djerbi¹,

Jarboui²

2013

J. Account. Taxation

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In this paper, we examine the impact of discretionary current accruals on the performance of French IPO companies. We first note income-increasing earnings management in the first year as a public company and not in the year before the IPO (Initial Public Offerings). Based on a sample of 139 French IPOs over the period 1999 to 2007, including 38 failures, we also document that companies associated with aggressive earnings management in the IPO process, tend to suffer from subsequently poor returns and to delist for performance failure after IPO. However, we find no evidence to suggest that the level of initial return is negatively related to discretionary current accruals.

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Earnings management, stock issues, and shareholder lawsuits

Cited by 452 publications

References 25 publications

Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance

Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance

Corporate Goverance Determinants of Earnings Management: Evidence from Nigerian Quoted Companies

Earnings management and performance of French IPO companies

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