Download or read book Earnings Management and the Relationship Between Discretionary Accruals and Stock Returns of IPOs in the UK written by Thomson John and published by . This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Earnings Management and the Long Term Market Performance of Initial Public Offerings written by Siew Hong Teoh and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine empirically whether earnings management as measured by discretionary accounting accruals explain post-issue stock return underperformance for IPO firms. We find that high discretionary accounting accruals are related to negative abnormal stock returns with high statistical significance. For example, a trading strategy of a short position in IPO firms with high discretionary accruals and a long position in IPOs with low discretionary accruals result in a mean (median) excess return of 102% (83.5%) in the 36-month period beginning after the first fiscal year end of the IPO. The evidence is consistent with Ritter's [1991] conjecture that investors are systematically overoptimistic about the growth prospects of IPO firms. The high discretionary accounting accruals seem to be associated with initial overoptimism of investors with subsequent revelations about the appropriateness of the accruals causing a subsequent downward revision in stock prices.
Download or read book Earnings Management in the UK written by Sebastian Bos and published by . This book was released on 2017 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines the relationship between share ownership by boards of British stock exchange listed companies and accrual based earnings management. It provides the first empirical evidence that the relationship is impacted by UK Company Law and the institutional governance framework.We specifically model nonlinear relationships between the equity stakes owned by executive directors and discretionary accruals to account for managerial alignment-incentive and entrenchment at different levels of share ownership. To explain the nonlinear relationship, we discuss the UK institutional governance framework and highlight key regulatory thresholds. Piecewise linear regressions test the impact of these key regulatory thresholds on the earnings management-ownership relationship. We find that share ownership by executive directors has a significant impact on the level of discretionary accruals. The relationship is negative when the equity stakes of executive directors are below the 5% threshold of the ABI dilution limit and sections 376-378 of Companies Act 1985. Earnings management increases above 5% and below 10% of share ownership by executives. Once the 10% equity threshold of section 209 of Companies Act 1948 is reached, executive share ownership effectively mitigates accrual based earnings management. We find no evidence that equity ownership by non-executive directors mitigates earnings management practice of British companies.
Download or read book Earnings Accruals and Real Activities Management around Initial Public Offerings written by Peter Ising and published by Springer Science & Business Media. This book was released on 2013-10-06 with total page 242 pages. Available in PDF, EPUB and Kindle. Book excerpt: The beginning of the new millennium was characterized by company scandals in accounting around the world. A transparent and fair presentation of financial statements is beneficial for capital market participants. Especially around initial public offerings different incentives of these players exist to influence financial statements in diverse aspects. Therefore, studies of earnings management try to identify abnormal behavior. Peter Ising covers additional aspects to shed light on substantial drivers of discretionary reporting behavior around going public. Factors like influence on real activities, industry affiliation, and specific years in the IPO process add further insight to this theoretical and practical topic. The dependence on these factors is high and confirms that company specifics are important for interpretation of financial results.
Download or read book Stock Returns Earnings Management and Discretionary Accruals written by Brett D. Cotten and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays on IPO firm Earnings Management written by Scott N. Bronson and published by . This book was released on 2006 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: PART 1 This paper provides evidence on the timing of earnings management behavior for initial public offering (IPO) firms in the annual periods surrounding the offering. It also examines whether this behavior is related to CEO and CFO trading after the offering. Using discretionary accruals as my proxy for earnings management, I find that, for firms that file a new 10-K before the trading restrictions provided in underwriter lockup agreements end, average IPO-firm discretionary accruals are significantly positive in the first 10-K filed after the offering, and that these discretionary accruals are significantly larger than those in the offering prospectus. I also find a positive relation between CEO and CFO trading activity and discretionary accruals for the same group of companies. Taken together, the results suggest that earnings management behavior is more prevalent in the first 10-K filed than in the offering prospectus, that it is concentrated in the firms that file this 10-K before their lockup period expires, and that it is positively related to CEO and CFO trading after the offering. PART 2 This paper examines whether earnings management behavior has decreased in the period following the passage of the Sarbanes-Oxley Act of 2002 (SOX) for IPO firms. It also explores how any changes I observe for IPOs relate to any changes that have occurred for the broader set of public companies. I find that IPO firms have experienced a significant decrease in earnings management after the passage of SOX. The results also provide evidence that this decrease is driven by the smallest public companies. While pre-SOX discretionary accruals for IPO firms are larger than those for non-IPO firms, I find that the post-SOX decrease in discretionary accruals results in the level of IPO-firm discretionary accruals becoming indistinguishable from that of non-IPO firms. Finally, the evidence suggests that the characteristics of post-SOX offerings are different from those of pre-SOX offerings, and that the decrease in discretionary accruals in the post-SOX period remains after controlling for these changes.
Download or read book A Comparative Analysis of Real and Accrual Earnings Management Around Initial Public Offerings Under Different Regulatory Environments written by Mohammad Alhadab and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: While earnings management around IPOs has been researched in a number of settings, there has been a relative absence of work that analyses the impact of the regulatory environment on such activities. We find that the regulatory environment does impact the real and accrual earnings management activities of IPO firms. Our results show that IPO firms listing on the lightly regulated UK Alternative Investment Market (AIM) have higher (lower) levels of accrual based and sales based (discretionary expenses based) earnings management around the IPO than firms listing on the more heavily regulated Main market in the UK.
Download or read book Earnings Management and The Post Issue Underperformance of Seasoned Equity Offerings written by Siew Hong Teoh, Ivo Welch, T.J. Wong and published by . This book was released on 1995 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Incentives and Opportunities for Earnings Management in Initial Public Offerings written by and published by . This book was released on 1994 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Incentives and Opportunities for Earnings Management in Initial Public Offerings written by Siew Hong Teoh and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines accounting earnings and the associated accrual and cash flow components in the years surrounding an initial public offering (IPO) to study the incentives and opportunities for firms to manage earnings when going public. We identify firm and offering characteristics that may be related to the amount of earnings management in IPO firms. We find that age and ownership retention by original entrepreneurs are significantly negatively related to industry-adjusted discretionary accounting accruals. In addition, we find that net income and cash flow from operations increase in the fiscal year prior to the IPO, and decline significantly in the year of the IPO. Net income continues to decline subsequently but not cash flows. Discretionary working capital and total accruals in the year of the IPO are negatively related to future cash flows and the change in net income between the pre-and post-IPO period. Taken together, the evidence is consistent with a scenario where firms either time an IPO immediately after a year of unusually high cash flow or boost cash flows right before the IPO, and then use accounting accruals to sustain reported net income in the year of the IPO. Thus, the evidence is consistent with the IPO firm attempting to manage investor perceptions with discretionary accruals.
Download or read book Real and Accrual Earnings Management and IPO Failure Risk written by Mohammad Alhadab and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the relationship between real and accrual earnings management activities and IPO failure risk. Recent research shows that IPO firms manage earnings upward around the offer year utilizing real and accrual earnings management activities (e.g., Wongsunwai, 2012) and that these activities have severe negative consequences for future stock returns and operating performance (e.g., Cohen and Zarowin, 2010; Kothari et al., 2012). Thus, we predict IPO firms that engaged in higher levels of real and accrual earnings management will exhibit a higher probability of failure and lower survival rates. We test this hypothesis based on a sample of 570 IPO firms that went public over the period 1998-2008. We find evidence that IPO firms manipulate earnings upward utilizing real and accrual earnings management around the IPO. We also find that IPO firms with higher levels of real and accrual earnings management during the IPO year have a higher probability of IPO failure and lower survival rates in subsequent periods.
Download or read book Industry specific Discretionary Accruals and Earnings Management written by Atif Ikram and published by . This book was released on 2011 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter 3 extends the decomposition to examine the role of firm-specific and industry-specific discretionary accruals in explaining the subsequent market underperformance and negative analysts' forecast errors documented for firms issuing equity. I examine the post-issue market returns and analysts' forecast errors for a sample of seasoned equity issues between 1975 and 2004 and find that offering-year firm-specific discretionary accruals can partially explain these anomalous capital market outcomes. Nonetheless, I find this predictive power of firm-specific accruals to be more pronounced for issues that occur during 1975 - 1989 compared to issues taking place between 1990 and 2004. Additionally, I find no evidence that investors and analysts are more overoptimistic about the prospects of issuers that have both high firm-specific and industry-specific discretionary accruals (compared to firms with high discretionary accruals in general). The results indicate no role for industry-specific discretionary accruals in explaining overoptimistic expectations from seasoned equity issues and suggest the importance of firm-specific factors in inducing earnings manipulation surrounding equity issues.
Download or read book Earnings Management and the Long Run Performance of Spanish Initial Public Offerings written by Maria J. Pastor-Llorca and published by . This book was released on 2006 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: The poor stock price performance of firms conducting initial public offerings is one of the recent puzzles in financial literature. We detect this market anomaly for Spanish IPO firms and we investigate whether earnings management around the time of the offering can explain these results. Consistent with this explanation, we notice that issuing firms make use of discretionary accruals to report higher earnings in the IPO year. Moreover, firms with higher level of discretionary accruals experience more negative long-run abnormal returns. Thus, this evidence suggests that opportunistic earnings management explains, at least partially, the IPO anomaly in Spain.
Download or read book Earnings Management and Long run Post issue Performance of IPOs in India written by Mamta Dhanda and published by . This book was released on 2020 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: The controversies surrounding accounting figures bring forth the downgraded quality of financial statements in India. Opportunistic management of earnings at the cost of stakeholders' interest requires prompt regulatory measure as they may become grave in high profile corporate events like mergers and public issues. Focusing on one of the most important mega events of initial public offerings (IPOs) the present study evaluates the accounting figure of IPOs that came out during April 2010 to March 2013. The study measures pre and post issue earnings management for a time span of 11 years from April 2008 to March 2019 and post issue long run earnings and stock performance using Modified Jones Model (1995) for a time span of seven years including issue year and six post issue years. The study provides evidence of earnings management by Indian IPO firms and post issue earnings and stock underperformance due to reversal of discretionary current accruals of issue year. The study emphasizes on better monitoring and regulatory environment and precise definition of accounting choices to control managed accounts to avoid frequent fraud incidents.
Download or read book Earnings Management Corporate Investments and Stock Returns written by Feixue Xie and published by . This book was released on 2005 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we investigate the relation between accounting accruals and abnormal corporate investments and if the accrual-based anomaly documented by Sloan (1996) is distinct from the investment-based anomaly documented by Titman, Wei, and Xie (2004). Our results indicate that abnormal capital investments are positively associated with accounting accruals and that the mispricing of abnormal capital investments is distinct from the mispricing of discretionary current accruals. In addition, investors can earn substantially higher size-adjusted returns by exploiting both strategies at the same time than by exploiting each individual strategy alone. Finally, our result suggests that the stock market appears to overvalue both discretionary current accruals and abnormal capital expenditures.
Download or read book Regulatory Profit Targets and Earnings Management in Initial Public Offerings written by Ismail Norashikin and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the extent of earnings management associated with meeting forecasts made in IPO prospectuses in a developing economy where government regulation requires a profit forecast but allow promoters to choose either (1) to provide a profit guarantee or (2) to elect for a moratorium on share transfers for a defined period. Since the manager is mandated to make earnings forecast and there are costs associated with forecast error, we hypothesise that, in the first reporting period following the IPO, managers opting for a profit guarantee will signal their ability to produce a result within the target zone while managers opting for a share moratorium will match that performance to maintain their reputation, with the result that both groups are indistinguishable in the magnitude of earnings management.Using a sample of 92 regulated IPO firms we find a strong negative association between forecast error before earnings management and a firm's discretionary accruals. Our results support the hypotheses, leading to the conclusion that earnings are managed towards the forecast amount, consistent with both the desire not to deviate excessively from the forecast and income smoothing.
Download or read book Performance Matched Discretionary Accrual Measures written by S.P. Kothari and published by . This book was released on 2004 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research shows that extant discretionary accrual models are misspecified when applied to firms with extreme performance. Nonetheless, use of such models in tests of earnings management and market efficiency is commonplace in the literature. We examine the specification and power of the test based on a performance-matched discretionary accrual measure and compare it with traditional discretionary accrual measures (e.g., Jones and Modified-Jones Models). Performance matching is on return on assets and industry and is designed to control for the effect of performance on measured discretionary accruals. The results suggest that our performance-matched discretionary accrual measure is a viable alternative to existing discretionary accrual models for use in earnings management research.
