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REAL AND ACCRUAL EARNINGS MANAGEMENT AROUND IPOs: US EVIDENCE

Ben-Hsien Bao, Richard Chung, Yanjun Niu, Steven Wei

DOI: 10.22495/cocv10i3art7

Abstract

This study examines the presence of real activities manipulation (REM) of IPO firms utilizing the cross-sectional regressions on each industry-year (Roychowdhury, 2006). The real activities examined in this paper include sales manipulation, reduction of discretionary expenses and overproduction. We show that IPO firms have significantly negative abnormal cash flows from operations and significantly positive abnormal production costs in the IPO year. The findings suggest that IPO firms not only manipulate accruals to inflate reported earnings, but also engage in real activities manipulation. We also show that IPO firms‟ decisions to manipulate earnings in the IPO year is positively related to the amounts of IPO proceeds and negatively related to the underwriters‟ reputation rankings and the presence of venture capital.

Keywords: Initial Public Offerings, Accrual-Based Earnings Management, Real Activities, Real Earnings Management

How to cite this paper: Bao, B.-H., Chung, R., Niu, Y., & Wei, S. (2013). Real and accrual earnings management around IPOs: US evidence. Corporate Ownership & Control, 10(3), 76-94. http://doi.org/10.22495/cocv10i3art7

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