Role Of Underwriters In Restraining Earnings Management In Initial Public Offerings

Lee, Hei Wai; Xie, Yan Alice; Zhou, Jian

doi:10.19030/jabr.v28i4.7054

Cited by 9 publications

(2 citation statements)

References 34 publications

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“…If the reputable underwriters are able to select the highest quality IPO firms, a positive relationship between underwriter ranking and IPO long term performance is expected. Lee et al (2012) find support consistent with this hypothesis.…”

Section: Effect Of Earnings Management On Ipo Long-term Performancesupporting

confidence: 75%

Earnings Management Prior to Initial Public Offerings and Its Effect on Firm Performance: International Evidence

Premti¹

2013

International Journal of Financial Research

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This paper investigates the degree of discretionary current accruals (DCA -1 ) prior to the initial public offerings (IPOs) of foreign firms in an attempt to study the two seemingly opposing views of Teoh, Welch, and Wong (1998) and Ball and Shivakumar (2008) in regards to pre-IPO earnings management. By analyzing a sample of 4962 IPOs from 28 countries, I find that, on average, IPO firms do not report significantly positive DCA -1 . This result supports the view held by Ball and Shivakumar that IPO firms do not engage in earnings management and it is inconsistent with the earnings management hypothesis of Teoh et al. (1998). Furthermore, results support the criticism of Ball and Shivakumar (2008) that the use of discretionary accruals in the IPO year (DCA 0 ) is a biased measure of earnings management. However, consistent with the hypothesis of Teoh et al. (1998), results show that firms with higher discretionary accruals (DCA -1 or DCA 0 ) underperform in the long run. The negative relationship between the long-term performance and the level of DCA is robust to several measures of long-term performance (cumulative abnormal returns-CAR, buy-and-hold abnormal returns-BHAR, Fama-French 4-factor model-Alpha), to several time horizons (3 and 5 years), and holds even after controlling for several firm characteristics. Overall, the results show that although on average IPO firms don't engage in earnings management, the ones that do, underperform in the long run.

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Section: Effect Of Earnings Management On Ipo Long-term Performancesupporting

confidence: 75%

Earnings Management Prior to Initial Public Offerings and Its Effect on Firm Performance: International Evidence

Premti¹

2013

International Journal of Financial Research

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“…Other interesting international results that could spark Canadian research include the findings by Ndubizu () that EM is more related to cross‐listing rather than the issuance of new equity capital; Venkataraman et al () who find no evidence that pre‐IPO accruals are opportunistically high, and who suggest that auditors may reduce IPO clients' discretion (while noting that TWR and TWW's use of accruals at the end of the first year subsequent to the IPO date is a noisy measure of EM, assessing better alternatives); Ball and Shivakumar () who find that U.K. IPO firms report more conservatively than non‐IPO firms (they also challenge the results of TWW); and Chang et al () who use performance‐adjusted discretionary accruals as their measure of EM and find that the negative relationship between discretionary accruals and post‐IPO performance is not significant for firms with prestigious underwriters; it is only significant of lower quality underwriter IPO firms (see also Lee, Xie, and Zhou, ; Chen, Lin, Chang, and Lin, for studies that examine the role of underwriters in restraining EM in IPOs).…”

Section: Earnings Management Around the Ipo Datementioning

confidence: 99%

Firms in Transition: A Review of the Venture Capital, IPO, and M&A Literature

Cormier

Coulombe

Gutiérrez

et al. 2018

Accounting Perspectives

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A key area of research focuses on firms in transition, particularly those going public via initial public offerings, those growing via venture capital infusions, and acquirers and targets in merger and acquisition deals. In this article, we provide a review of research regarding firms in transition, with a primary focus on accounting‐related research. As part of our review we include key contributions both in the Canadian context and internationally, and discuss areas to be considered for future research.

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Use of independent valuation specialists in valuing employee stock options: evidence from IPOs

Stuart

Willis

2020

Rev Account Stud

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Role Of Underwriters In Restraining Earnings Management In Initial Public Offerings

Abstract: ABSTRACT

Cited by 9 publications

References 34 publications

Earnings Management Prior to Initial Public Offerings and Its Effect on Firm Performance: International Evidence

Earnings Management Prior to Initial Public Offerings and Its Effect on Firm Performance: International Evidence

Firms in Transition: A Review of the Venture Capital, IPO, and M&A Literature

Use of independent valuation specialists in valuing employee stock options: evidence from IPOs

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