Are Accruals during Initial Public Offerings Opportunistic? |
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Authors: | Teoh Siew Hong Wong T J Rao Gita R |
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Institution: | (1) University of Michigan Business School, Ann Arbor, MI, 48109-1234;(2) Hong Kong University of Science and Technology, Hong Konh;(3) Colonial Management Associates, Hong Kong |
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Abstract: | We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO-year abnormal, and not expected, accruals explain the cross-sectional variation in post-issue earnings and stock returns. The results are robust with respect to alternative abnormal accruals and earnings performance measures. IPO firms adopt more income-increasing depreciation policies when they deviate from similar prior performance same industry non-issuers, and they provide significantly less for uncollectible accounts receivable than their matched non-issuers. The results taken together suggest opportunistic earnings management partially explains the new issues anomaly. |
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